Measuring Oligopoly Power of Processors in Regional Fluid-milk Markets by Natural Experiments

Fluid-milk markets in Korea are served by relatively few suppliers but it has been difficult to find evidence of market power in these markets. To estimate market power this study measures how much of the cost shocks are passed through to prices in the regional fluid-milk markets instead of measuring cost function. Raw-milk prices used as a cost shifter in this analysis are exogenously determined by the government policy, so this study exploits a natural experiment that is helpful to explain the relationship between exogenous policy shocks and corresponding endogenous variables. Results imply that dairy processors do exert oligopoly power in the regional fluid-milk markets in Korea.