Market Power in Philippine Agricultural MarketsDOWNLOAD
July 26, 2023 - Author: Gabriel Domingo, PhD and Hadassah R. Cordero
Market power in markets are distortions that limit the efficient allocation in an economy. Measuring these distortions is nowhere more important than in agricultural markets. In this paper, we use the production function method to measure market power in Philippine agricultural markets. Using establishment level surveys for agricultural suppliers from 2012 to 2018, we estimate a PSIC 5-digit national average markup parameter through an extension of standard neoclassical Total Factor Productivity (TFP) regressions pioneered by Hall (1988). Prior work in measuring markups in the Philippines rely on estimating average profit directly from survey or financial disclosures data. We estimate both a returns to scale parameter and a national markup parameter. We find average markups ranging from 8% to 14%, and constant or modest increasing returns to scale. These estimates are consistent with the equilibrium relationship between markups, profits and returns to scale. We also find evidence that distortions in agricultural labor are higher than in materials expenditure.
Keywords: Production Function, Agriculture, Market Power, Philippines
JEL Classifications: D22, D43, L70, L11, O12, O13, Q12
Domingo, G., & Cordero, H. (2023). Market Power in Philippine Agricultural Markets. https://www.canr.msu.edu/prci/publications/PRCI%20Research%20Paper%20PCCMarketPower.pdf