Estimation of market power and simulations of the effects of exogenous shocks on the baby formula market in Korea

To assess the impacts of exogenous shocks including policy changes on the Korean baby formula market, this paper presents an equilibrium model of an oligopoly market. It is showed how we derive some useful parameters in an oligopoly market such as supply elasticity with respect to marginal cost in this paper. The adjusted Lerner index in Korean baby formula industry is measured as 0.104 and the average of derived mark-up is 8.64 percent. The estimated excess profits for the producers of baby formula have been increased over time. Simulation results indicate a small decrease in the new-born babies in a short run will not have big influences on the baby formula industry.