| The Korean dairy market has become increasingly concentrated over the past several decades, being dominated by a few large dairy processors, which indicates that there is potential for the domestic milk processors to express market power. The objective of this study was to empirically measure the degree of oligopoly power of domestic white fluid milk processors by using the new empirical industrial organization (NEIO) approach which includes conjectural variation (CV). The autoregressive distributed lags (ARDL) bounds found that there exists a long-run equilibrium among the variables. The ARDL approach allows the estimation of the long-run and short-run coefficients using the ordinary least squares (OLS). The coefficients estimated in the long-run and short-run model are significantly different from zero, implying that the Korean milk industry is imperfectly competitive. Based on the oligopolistic power parameters there was an upward trend until 2003, then a downward trend, implying that the white fluid milk market has become more competitive over time. The Lerner's Indices calculated in the long and short-run are 14.9% and 3.7%, respectively, which indicate that the domestic white fluid milk processors have on average gained excess profits from 1985 to 2014 while exerting their oligopoly power. |
