Market Power of Domestic Marketers and its Influence on the Consequences of the Korea–US and Korea–Australia FTAs on the Beef Market

Byeong-il Ahn, Rodolfo M. Nayga, Jr

Research output: Contribution to journalArticle

Abstract

Domestic, US and Australian beef, which are differentiated by country of origin, are sold in Korea. In this differentiated product market, tariff reductions through Free Trade Agreements (FTAs) are expected to strengthen the competitiveness of imported beef and, therefore, to mitigate the effects arising from the market power of domestic marketers. The present study develops a simulation model that evaluates this mitigating effect by explicitly reflecting the market structure that domestic beef marketers constitute. The simulation results indicate that the farm-retail marketing margin would decrease by 10.59% or 6.79% due to the Korea–US and Korea–Australia FTAs, respectively, if domestic beef marketers formed a cartel or an oligopoly market (i.e. the degree of market power is 0.5), while the marketing margin under a competitive market scenario is simulated to have no change. The value of beef production would decrease by 1009 million dollars if the marketers form a cartel and hence exercise monopoly power. The FTAs are simulated to reduce the value of beef production by 564 million dollars under the competitive market scenario.

Original languageEnglish
Pages (from-to)1-19
Number of pages19
JournalGlobal Economic Review
DOIs
Publication statusAccepted/In press - 2016 Mar 4

Fingerprint

market power
free trade
market
cartel
dollar
marketing
scenario
oligopoly
country of origin
monopoly
simulation model
Korea
competitiveness
Values
farm
Marketers
Free trade agreements
Market power
Beef
simulation

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business and International Management
  • Political Science and International Relations

Cite this

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title = "Market Power of Domestic Marketers and its Influence on the Consequences of the Korea–US and Korea–Australia FTAs on the Beef Market",
abstract = "Domestic, US and Australian beef, which are differentiated by country of origin, are sold in Korea. In this differentiated product market, tariff reductions through Free Trade Agreements (FTAs) are expected to strengthen the competitiveness of imported beef and, therefore, to mitigate the effects arising from the market power of domestic marketers. The present study develops a simulation model that evaluates this mitigating effect by explicitly reflecting the market structure that domestic beef marketers constitute. The simulation results indicate that the farm-retail marketing margin would decrease by 10.59{\%} or 6.79{\%} due to the Korea–US and Korea–Australia FTAs, respectively, if domestic beef marketers formed a cartel or an oligopoly market (i.e. the degree of market power is 0.5), while the marketing margin under a competitive market scenario is simulated to have no change. The value of beef production would decrease by 1009 million dollars if the marketers form a cartel and hence exercise monopoly power. The FTAs are simulated to reduce the value of beef production by 564 million dollars under the competitive market scenario.",
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