IDENTIFICATION OF MARKET POWER IN BILATERAL OLIGOPOLY: THE BRAZILIAN WHOLESALE MARKET OF UHT MILK 1. Abstract

Transcription

1 IDENTIFICATION OF MARKET POWER IN BILATERAL OLIGOPOLY: THE BRAZILIAN WHOLESALE MARKET OF UHT MILK 1 Paulo Robero Scalco Marcelo Jose Braga 3 Absrac The aim of his sudy was o es he hypohesis of marke power i he wholesale marke for UHT milk. The srucure of his marke is a oligopoly characerized as bilaeral ad uses he model proposed by Schroeer e al. (), which allows esig he hypohesis of marke power wihou assumig he resricive hypohesis of price-akig behavior o oe side of he marke. The sysem of oliear simulaeous equaios ha deermies quaiy, wholesale ad reail prices of UHT milk was esimaed by oliear geeralized mehod of momes. Esimaio of coduc parameer was.638, rejecig he hypohesis of a perfecly compeiive marke. Evideces sugges ha reailers exer oligopsoy power o he dairy idusry; however, he disorios caused by such marke power could o be quaified. Keywords: dairy secor, marke power, bilaeral oligopoly, GMM oliear oligopsoy. JEL: L11, L13, C36 1. Iroducio The dairy secor was sigificaly affeced by he observed macroecoomic chages i he 199 s. The marke deregulaio, free rade ad ecoomic sabilizaio, icreased compeiio i he Brazilia agro idusrial sysem ad, from ha ime, a wave of mergers ad acquisiios (M&A), iduced by he idle capaciy of he idusry ad by he rapid ad "srog" growh of food cosumpio was observed afer he sabilizaio (Jak e al., 1999 ad Faria e al., 5). I his coex, he idusry of dairy producs became more coceraed due o ery of grea muliaioal compaies, such as Neslé, Parmala, Fleischma-Royal ad Daoe, acquirig aioal dairy compaies alog he 199 s. Subsequely, a secod M&A wave was observed, however, his ime ivolvig maily Brazilia compaies such as Perdigao ad Laicíios Bom Goso ad also ivesmes fuds ha made several 1 We wish o ackowledge he fiacial suppor of he Research Foudaio of he Sae of Goias (FAPEG) ad he Naioal Coucil for Scieific ad Techological Developme (CNPq). Faculy of Admiisraio, Accouig Scieces ad Ecoomics, Federal Uiversiy of Goias. 3 Deparme of Rural Ecoomics, Federal Uiversiy of Viçosa.

2 acquisiios ad became grea busiess coglomeraes 4 (Jak e al., 1999; Faria e al., 5; Teixeira e al., 6; Cocha-Amim ad Aguiar, 6 ad Azevedo ad Polii, 8). Likewise, i he disribuio ad reail sysem, grea disribuio eworks ad hypermarkes were rasformed io he mai milk disribuio chael of dairy producs ad compaies like CBD (Brazilia Disribuio Compay), Carrefour, Wal-Mar ad SONAE adoped M&A sraegies o expad heir busiess (Faria e al., 5; Teixeira e al., 6; Cocha-Amim ad Aguiar, 6 ad Azevedo ad Polii, 8). These rasformaios brough impora impacs o he secor, sice i he curre marke srucure; o oe side are dairy compaies, wih relaively coceraed srucure, ad o he oher side, chais of super ad hypermarkes, also coceraed. Boh milk producers ad dairy compaies were placed i a siuaio where hey eed o egoiae wih ages, who have greaer bargaiig power (Maris ad Faria, 6). Uder his coex, he icrease i coceraio raes causes cocer, as high marke coceraio ca be associaed wih he exercise of marke power (Sexo ad Zhag, 1). Fial cosumers would face higher prices as a resul of less compeiio ad producers ad/or suppliers, upsream, would face buyers wih marke power, reducig e prices ad imposig specific sadardizaios i heir producs (FARINA e al., 5). Empirical sudies seem o sugges ha he icrease of coceraio has o caused damages for cosumers. Barros e al. (4) poi ou ha from he cosumer sadpoi, he secor has show good performace, as he demad has bee aeded a decliig prices. Likewise, Faria e al. (5) affirm ha cosumers were beefied by he resrucurig ha occurred i he food reail secor. Prices have falle sice he ecoomic sabilizaio i 1994 ad, i coras o wha was expeced, he umber of idepede supermarkes ad radiioal reailers has grow, as well as heir paricipaio i food sale. Cocha-Amim ad Aguiar (6) also cocluded ha alhough he marke coceraio has icreased, his sudy showed some evideces suggesig beeficial effecs i erms of social well-beig, i oher words, he sregheig of radiioal supermarkes ad he elevaed urover i several groups of supermarkes. Accordig o he auhors i a sceario where compaies have difficulies i maiaiig heir posiios, he search for efficiecy profis becomes more probable, as well as rasferrig high prices o cosumers eds o be avoided (Cocha-Amim ad Aguiar, 6, p. 54). Therefore, from he cosumer poi of view, evideces do o idicae ha he icrease of coceraio has caused damages i erms of social well-beig; however, i is ecessari 4 Perdigao was oe of he mai idusries of he food secor i Brazil, acig, maily, i he maufacurig of poulry ad pork. I 6 i eered he milk secor hrough he purchase of Baavo ad hrough oher acquisiios; i 7 i became he secod larges milk compay i Brazil. I 9 i merged wih Sadia, aoher compay of he food secor, which resuled i he creaio of Brazil Foods S/A, he larges idusry of he food secor i Brazil. The dairy idusry Bom Goso, bewee 7 ad 1, made seve acquisiios of dairy compaies, disribued wihi he larges producig saes of Brazil ad became he secod larges dairy idusry i erms of milk collecio i 9. I 1, i merged wih Leie Bom, origiaig he LBR Milk Brazil S/A ad sared o process, approximaely, 1.8 billio liers of milk per year i 1.

3 o aalyze he wholesale marke of dairy producs. Cocha-Amim ad Aguiar (6) argue ha i face of difficulies i rasferrig more elevaed prices o cosumers... bigger supermarkes would be implemeig efficiecy profi sraegies ad, simulaeously, pracicig moopsoy power i relaio o suppliers who do o have srog commercial brads (Cocha-Amim ad Aguiar, 6, p. 54). I his sese, he aim of his sudy was o coribue wih he discussio by ivesigaig he hypohesis of exisece of marke power i he wholesale marke of UHT ype milk. I addiio, he sudy aims a ideifyig which ype of coduc prevails, oligopoly or oligopsoy. I he sceario where boh marke sides (buyers ad sellers) are relaively coceraed, marke equilibrium, mus o ecessarily be compeiive ad boh buyers ad sellers ca exercise marke power. Thus, his sudy uses he model proposed by Schroeer e al. (), which solves he problem of marke power mesuraio wihou maiaiig a hypohesis of compeiive behavior o oe side of he marke. The soluio uses a very similar sraegy o ha used by Bresaha (198) o ideificaio i he oligopoly case; however, i rasforms he hypohesis of price-akig behavior of he caegory maiaied a priori, o a esable hypohesis. Moreover, he sudy coribues wih he empirical lieraure whe esimaig oliear equaios sysems by he oliear geeralized mehod of momes (oliear GMM). The GMM mehod is o a radiioally used mehod i he esimaio of models i he Idusrial Orgaizaio area, however, i is a aracive aleraive o radiioal mehods (SLS or 3SLS ad maximum likelihood), sice esimaors ad he respecive sadard deviaios are cosise, eve i he presece of heeroscedasiciy ad/or auocorrelaio. I addiio, i coras o he maximum likelihood mehod (used by Schroeer e al. ()), he GMM declies he kowledge of process disribuio, as well as he ormaliy hypohesis. This aricle is orgaized i six secios, icludig he iroducio. I he ex secio he heoreical ad empirical bilaeral oligopoly model is developed. I secio hree, he GMM mehod will be preseed for esimaio of models ad i secio four, he variables, source of daa ad used procedures are described. The resuls ad discussio are preseed i secio five ad fial cosideraios are made i he las secio.. Theoreical ad empirical model of bilaeral oligopoly Ecoomic Theory, more specifically he brach of New Empirical Idusrial Orgaizaio (NEIO) developed, bewee he years 198 ad, a wide variey of approaches for marke power mesuraio; however, all of hem assumed ha paricipas i a specific side of he marke were akig prices as give, while ages o he oher side could or o, exercise marke power. The wholesale marke of UHT milk ca be defied as a bilaeral oligopoly, which represes a marke srucure where boh buyers ad sellers are relaively coceraed ad ca exercise marke power. Accordig o Sexo (), models ha focus oly o he ideificaio of marke power from oe side ake he risk of: (a) o udersadig

4 he exesio of he marke power disorio ad/or (b) misakely aribue disorios o he wrog form of marke power. Therefore, he model employed for ideificaio of marke power i he wholesale segme of UHT milk is he model developed by Schroeer e al. (). I his model, here are a leas hree codiios ha ca prevail: (i) he wholesale marke ca be perfecly popular, buyers ad sellers are price akers; (ii) sellers are price akers, while buyers exercise buyig power (oligopsoy power) ad (iii) buyers are price akers, while sellers exercise marke power (oligopoly power). The model focuses primarily o deermiig prices ad wholesale marke quaiies ad is buil, from he followig logic 5. Accordig o Schroeer e al. () we assume ha he demad curve of he reail idusry could be described (i reverse form) as: p r α + α1q + α Z + α3qz +, (1) = 3 where p r, is he real price of UHT milk (a he reail level); Q is quaiy; Z is a exogeous demad shifer (populaio, or a ime red variable, for example); Z 3 is a exogeous variable affecig he slope (elasiciy) of he demad curve (prices of subsiue goods, for example); i is a radom error erm ad αi, i =..., 3 are he parameers o be esimaed. The ieracio erm is icluded o esure ideificaio of he degree of reail marke power 6. Reailers ad maufacurers margial coss, MC r ad MC m, are give by: MC r b + b Q + b +η ad () = 1 W MC m = c + c1q + cv + c3qv3 + µ, (3) where W ad V are exogeous facor prices (prices of oher ipus ha shif MC r ad MC m, for example); V 3 is a exogeous variable affecig he slope of MCm 7, such as for example, price of some facor or subsiue produc i he maufacurig process; η ad µ are radom error erms ad b j ad c h, j =, 1 ad ad h =..., 3 are parameers o be esimaed. The oal reveue for he reail idusry is p r Q. Thus, moopoly margial reveue is p r + (dp r /dq)q or, usig Equaio (1), p r + (α 1 + α 3 Z 3 )Q. Followig he usual way, i is possible o accommodae a rage of oligopoly coducs o he par of reailers assumig ha heir perceived margial reveue, PMRr is give by: PMR = pr + λ ( α 1 + α 3 Z 3 Q (4) r ) i which λ =, implicaes ha he firms behave as prices akers i he reail marke ad λ = 1, i correspods o pure moopoly coduc. The perceived e margial reveue by 5 For furher deails, see Schroeer e al. (). 6 Soluio for ideificaio problem as proposed by Bresaha (198). 7 The ieracio erm c3qv3, similar o he sraegy proposed by Bresaha (198), is icluded o solve he problem of sysem ideificaio. The parameer allows ha he maufacurers margial cos curve roaes o simply shifs due o chages i exogeous variables.

5 reailers (whe excludig heir margial cos) is give by: PNMR r = PMR r - MC r or, usig (4) ad (): PNMRr = pr + λ( α1 + α 3Z3 ) Q b b1q bw η. (5) I he bilaeral price-akig (BPT) soluio, he equilibrium quaiy is deermied by he codiio. Thus, equalig equaios (3) ad (5) ad rearragig he erms, he resul is as follows: [ λ( α + α Z ) ( b + c ) c V ] Q ( b + c ) p r (6) b W c V = ( η + µ ). Reail price is he demad price evaluaed a he quaiy deermied by (6) ad wholesale price is equal o he commo value of PNMR r ad MC m : [ + α Z ] Q α α = α ad (7) p r Z [ c + c V ] Q c c = µ p w, (8) V where p w appears from he fac ha p w = MCm. Thus, he sysem formed by equaios (6), (7) ad (8) deermies hree edogeous variables p r, Q ad p w ad represes he soluio for he BPT case. The ex sep cosiss i deermiig he soluio where he maufacurig idusry is price-akig (MPT). I his sceario, he aswer of maufacurig firms is described by he supply curve P w = MC m or, by usig (3): P w = c + c1q + cv + c3qv3 + µ. (9) Reailers oal expediure o he wholesale producs is p w Q ad moopsoy margial expediure is pw + (dp w /dq)q or, usig Equaio (9), p w + (c 1 + c 3 V 3 )Q. Agai, i is possible o accommodae a rage of oligopsoy coduc i he wholesale marke wih he assumpio ha reailers maximize profi subjec o a perceived margial expediure PME r give by: PME r = P w + δ (c 1 + c 3 V 3 )Q or, usig Equaio (9): ( + δ )( c + c V ) Q + c + µ PME r = c V. (1) Similar o λ, he ierval of δ is [, 1]: δ = 1 ideifies he pure moopsoy case ad δ = correspods o price-akig behavior by reail firms i he wholesale marke. Uder he MPT case, equilibrium quaiy is deermied by PNMRr = PMEr. Usig Equaios (5) ad (1), a aleraive soluio o BPT s soluio equaio (6): + [ λ( α1 + α3z3 ) ( b1 + ( 1+ δ ) c1 ) ( 1+ δ ) c3v 3] ( b + c ) b W c V = ( η + µ ) p r Q. (6 ) Equaios (7) ad (8) from he BPT soluio combied wih equaio (6 ) deermie he MPT case soluio. I is oiced ha if δ =, he MPT case comes dow o he BPT case. For he hird case, where reailers are price akers (RPT), he maufacurig idusry faces a reailers demad curve give by PNMR r. The margial reveue for he maufacurig idusry is PNMR r + (dpnmr r /dq)q or, usig Equaios (1) ad (5): PNMR r + [(1 + λ) (α 1 + α 3 Z 3 ) b 1 ]Q. As previously meioed, i is possible o allow a

6 rage of oligopoly coduc o he par of maufacurers, hrough heir perceived margial reveue curve: PMR = PNMR + γ [( 1+ λ)( α + α Z ) b ]Q, (11) m r where γ [, 1] idexes he coduc of maufacurig firms as price akers (γ = ) a pure wholesale moopoly (γ = 1). The RPT soluio is characerized by PMR m = MC m. Usig Equaios (11), (3) ad (5), his codiio implicaes ha: + [( γ + λ( 1+ γ ))( α1 + α3z3) ( b1 ( 1+ γ ) + c1 ) c3v 3] ( b + c ) b W c V = ( η + µ ) p r Q. (6") I he RPT model, maufacurers charge a wholesale price equal o he price derived from he demad a he equilibrium quaiy: p w = PNMR r (moopoly soluio). Through equaio (5) ad subsiuig p r of (6") i resuls i: [ γ ( 1 + λ)( α + α Z ) ( γb + c ) c V ] Q c c V = µ p w. (8 ) Equaios (6"), (7) ad (8") describe he soluio for he RPT case. I ca be oiced ha, i his soluio, if γ = he RPT case comes dow o he BPT case. Accordig o Schroeer e al. () give he hree equilibrium coceps, decidig o he mos cosise cocep wih he observaios ivolves hypoheses ess. As previously demosraed, i is easy oicig ha a simple parameric resricio of δ = covers he MPT soluio (6 ) o he BPT soluio (6). Therefore, a bilaeral price-akig behavior assumpio ca be esed versus a aleraive assumpio ha oly maufacurers are price akers (or some degree differe from zero of oligopsoy power) esig δ = versus δ>, usig he es- procedure, based o esimaes of MPT equilibrium equaios. Similarly, esig γ = versus γ >, i he equaios of RPT equilibrium, meas comparig BPT soluio (6) ad (8) wih RPT soluio (6") ad (8 ). Neverheless, a compariso of he wo equilibrium coceps MPT ad RPT cao be obaied by parameric resricios. This is because eiher ca be obaied as a parameric resricio of he oher. Thus, Schroeer e al. () propose a ad hoc approach ivolvig esig models, where he wo equilibrium coceps MPT ad RPT are grouped i a larger model. The arificial esig soluio (NST), proposed by he auhors ca be represeed by he followig equaio: + [( γ + λ( 1+ γ ))( α1 + α3z3) ( b1 ( 1+ γ ) + ( 1+ δ ) c1 ) c3( 1+ δ ) V3 ] ( b + c ) b W c V = ( η + µ ) p r Q. (6 ''') The esig soluio cosiss of equaios (6 '''), (7) ad (8 ). Wih δ =, (6 ''') reduces o (6") ad he NST soluio cosiss he RPT soluio. Wih γ =, (''') (6 is reduced 6 o), (8 ) is reduced o (8) ad he NST soluio becomes he MPT soluio. Wih δ= γ=, (6 ''') ad (8 ) reduce o (6) ad (8), respecively, ad he resul is he BPT soluio. The idea behid he cosrucio of his es ivolves groupig boh coceps i a grea (esig) arificial model ad he, es each oesed model versus he esig model,

7 usig margial sigificace levels of his es o order he plausibiliy of boh models, origially o-esig. Give he esimaes of he NST model parameers, a es of δ = versus δ> is a es of he RPT model versus he more geeral NST model. A es of γ = versus γ> is a es of he MPT model versus he NST model. Accordig o he auhors, a disadvaage of his mehod, however, is ha he NST model, ulike he BPT, MPT ad RPT models, has o clear ecoomical ierpreaio. Cosequely, i would be difficul o carry ou aalysis if i a es resul he MPT model is rejeced, for example, i favor of he NST model. I his sese, he auhors sugges a more direc approach o comparig MPT ad RPT models direcly 8, he es employed here is he selecio es of oesed models proposed by Rivers ad Vuog (). I he proposed formulaio, i four soluio coceps, he parameers are ideified. The fac ha δ is ideified i he MPT soluio meas ha he bilaeral price-akig behavior (BPT) ca be empirically disiguished from exercise of reailers moopsoy power (MPT) i he wholesale marke. Thus, he fac ha γ is ideified i he RPT soluio meas ha he daa may discrimiae bewee he BPT equilibrium ad exercise of moopoly power by maufacurers (RPT). The uderlyig equaios o each equilibrium cocep are he reailer s demad (eq. 1), reailers margial cos (eq. ) ad dairy producs margial cos (eq. 3). 3. Esimaio procedures The ses of equaios for each equilibrium soluio appoi four sysems of equaios, each oe represeig a proposed equilibrium cocep (BPT, MPT, RPT ad NST). All sysems are formed by hree oliear equaios, which simulaeously, mus deermie hree edogeous variables of he model: p r, Q ad pw ad are esimaed by he oliear geeralized mehod of momes (GMM). The GMM mehod becomes aracive, sice he esimaor ad he respecive sadard error are cosise, eve i he presece of heeroscedasiciy ad/or auocorrelaio. Moreover, i coras o he maximum likelihood mehod, GMM does o make srog assumpios o disribuio, or ormaliy. The basic priciple of he GMM mehod is he heoreical relaio ha parameers mus saisfy orhogoaliy codiios bewee some fucios i he parameers ad a se of isrumeal z variables. The idea is o choose esimaes of parameers, so ha he heoreical relaio is saisfied as close as possible. The heoreical relaio is subsiued by is samplig couerpar ad esimaes are chose i such a way ha hey miimize he disace cosidered bewee curre ad heoreical values. Usig he oaio employed by Galla (1987), he sysem referrig o ay equilibrium ca be implicily wrie as: ( y x, ) e qα, θ α = α =, 1,..., α = 1, ad 3 (1) 8 I he origial sudy, Schroeer e al. () use he Full Iformaio Maximum Likelihood (FIML) procedure ad he Cox's procedure for ess of oesed hypoheses.

8 where is ime, y is a vecor of hree edogeous variables, x is a vecor colum of exogeous variables, θ is a vecor colum of ukow parameers of he model, e is a hree dimesio vecor of error srucural erms, e = [ e,, ] = [ η + µ,, µ ] 1 e e3 ad q( ) is a hree dimesio vecor of oliear fucios of is argumes. Due o he olieariy of he model, e's errors are o assumed o be serially idepede from he exogeous variables, eiher, ormally disribued. As discussed, he GMM mehod is a esimaor ha uses isrumeal variables o form mome equaios. Tha is, beig z, a vecor K of radom variables, he followig samplig momes ca be formed where: m m 1 θ (13) ( ) = m( y, x, θ ) = 1 ( y, x, ) = q( y, x, θ ) 1( y, x, θ ) z ( y,, ) x θ z 3( y, ) x θ z 1 q θ z = q, (14), 3 K q equals he heoreical (or populaio) mome codiios ( θ ) E[ m ( θ )] m = ad uses he soluio θˆ as esimae of θ. The problem is ha if he dimesio 3K of m θ exceeds he dimesio p of θ (superdeermied model as usual), hese ( ) equaios will have o soluio. I his case, θ i is esimaed by value θˆ ha miimizes he crierio fucio S where 1 ( θ, V ) [ m ( θ )]' V [ m ( θ )] =, (15) {[ m ( θ )], [ m ( θ )]' } V = E, (16) is he covariace marix. Oce, m ( ) = 1 θ e z [ m ( θ )] = correlaed wih e ad E {[ m ( )] [ ( )]} = ( Σ θ, m θ ' z z ) = Σ = 1 If { z } for idepedece de { } z = Z( ) = 1 = 1 z z E if z is o e. This codiio is obaied if imposed he hypohesis ha x, where Z (x) is some fucio (possibly oliear) of idepede variables. If i is assumed ha Σ is a ideiy marix, o weak regulariy codiios i is possible o demosrae ha θˆ is a asympoically efficie GMM esimaor. The problem, however, is ha V is ormally ukow ad i dyamic models, x ca also coai

9 oudaed exogeous or edogeous variables, which implicaes ha m( y, x, θ ) = e z i will ormally be correlaed ad Σ cao be assumed as a ideiy marix aymore. I hese cases, he adoped sraegy for obaiig asympoically efficie GMM esimaors (θˆ ) is o subsiue he V marix for a esimae Vˆ of samplig covariace marix, usig a cosise esimaor wih auocorrelaio ad heeroscedasiciy, kow as HAC. A HAC esimaor of V is a buil marix Vˆ, ha esimaes V cosisely whe e error erms demosrae some heeroscedasiciy ad/or auocorrelaio paer (Davidso ad Mackiom, 1999). The used esimaor is oe of he mos commoly cied i he lieraure, ad was proposed by Newey ad Wes (1987). The esimae of θ, so, ow is obaied hrough he value ha miimizes he crierio fucio, S ( θ, Vˆ ) m ( θ ) [ ] Vˆ 1 ' [ m ( θ )] =, (17) which is ideical o (15), excep for he fac ha V was subsiued by is robus esimae (Vˆ ). The variace-covariace marix is obaied hrough: ˆ 1 ( ˆ) ˆ,, (,, ˆ) = 1 = 1 C = Q y x θ z V Q y x θ z, (18) =. θ Where Q( y x, ˆ θ ) q( y, x, θ ), Cocerig oliear equaios sysems, he GMM esimaor, based o he crierio fucio (eq. 17), cao be solved hrough a equaios sysem (as i he liear case) regardig ukow regressio coefficies, where here is a sigle soluio. The problem is ha he parameers eer i he equaio oliearly ad a aalyical soluio usually cao be foud. I his sese, umerical mehods ha ca fid values of parameers θ, opimizig he crierio fucio, give by equaio (17) are ecessary. Ieraive opimizaio algorihms, as such mehods are called, work akig a se of iiial values for he parameers θ (), ad he calculaios based o hese values are doe o obai a se beer of parameers, for example θ (1). This process is repeaed θ (), θ (3), uil he crierio fucio does o improve (coverge o a deermied poi) bewee ieracios. (EVIEWS, 1). Accordig o Galla, (1987), he widely used mehod is he modified versio of he Gauss-Newo mehod proposed by Harley (1961). The Gauss-Newo mehod, also kow as he liearizaio mehod, uses a Taylor series expasio o approximae he oliear regressio model wih liear erms ad, he, i applies ordiary leas squares o esimae he parameers. Whe he problem cosiss of oliear equaios sysems, meaime, he sofware Eviews (used i he aalysis), uses a aleraive versio of he mehod, deomiaed Gauss-Seidel, which, firs aalyses he sysem o deermie if i ca be separaed i wo or more blocks of equaios, so ha hey ca be sequeially solved, 1

10 isead of simulaeously. Oce he blocks are deermied, each block is idividually solved. If he block does o coai simulaeiy, each equaio i he block is esimaed oly oce. If he block coais simulaeiy, equaios i he block are solved hrough he ieraive algorihm. (EVIEWS, 1) I is highlighed ha he choice of iiial esimaes i he Gauss-Newo mehod is very impora, sice a bad choice may resul i a very big umber of ieraios o reach covergece; he procedure may also coverge a a local miimum, or, eve o coverge. Accordig o Galla (1987), he choices of iiial values ca be obaied by a priori kowig he siuaio, ispecig daa, grid survey, or aemp ad error. The way empirical models are preseed, however, here is a mehod ha faciliaes ad also provides a coveie sraegy for he deermiaio of iiial values. If i fial demad equaios, reailer s margial cos ad maufacurer s margial cos are assumed ha coduc parameers λ, δ ad γ, equal zero, by he logic of he buil model, he wholesale marke would be cosidered as bilaeral price-akig, i addiio, reailers would o exercise marke power over cosumer, i oher words, we would have a perfecly compeiive marke. This assumpio, besides deermiig he idusry coduc, also simplifies he sysem of equaios, as uder such assumpio, he sysem becomes liear i parameers ad ca be solved by he radiioal mehod of aalyical equaios sysem ad esimaes of ukow parameers ca be obaied as i radiioal liear models. These parameers obaied from he resricio of he marke behavior, will serve as iiial values for Gauss-Seidel s opimizaio algorihm. 4. Variables, source of daa ad used procedures O accou of daa availabiliy, i was possible o build a mohly-based daabase for he saes of Rio Grade do Sul, Paraá, Sao Paulo, Mias Gerais ad Goiás, ecompassig he period of July of 4 o December of 9, oalizig 66 observaios. These five saes produced 19. billio liers of milk i 9 ad were resposible for approximaely 67% of he aioal producio. I addiio, he dairy idusry of hese five saes, joily, was resposible for aaime ad idusrializaio of approximaely 14.5 billio liers of milk, which correspoded o early 75% of he oal milk idusrialized by dairy compaies wih some ype of saiary ispecio i Brazil. The variables used i he model, basically, are reail ad wholesale UHT milk prices ad ipu prices ha compose he margial cos of dairy compaies ad reailers. The variables, heir descripios ad sources are summarized i Table 1. Sice exogeous shifer of he reailers demad he GNP of Brazil was used as proxy of reveue ad as exogeous shifer of he demad curve slope, he frui juice price was used, represeig a subsiue produc i milk cosumpio. For he compoes of reailers margial cos, he diesel oil price was used, as proxy for freigh expeses, eergy geeraio ad price paid for milk i aura, as mai ipu used by dairy compaies. Furhermore, a ime red was used as exogeous shifer of margial cos of dairy compaies. All variables cosidered exogeous i he model were used as ools i he esimaio procedure by he oliear GMM mehod. Besides, wo oher variables were used as isrumes: mea salary of workers of he food reail secor ad a ieraioal dairy

11 prices rae, released by he Food ad Agriculure Orgaizaio of he Uied Naios (FAO). Table 1. Variables used i esimaio of bilaeral oligopoly model. Reailers demad fucio Variable Descripio Source pr Mohly mea price of UHT milk lier sold i reail marke (i DIEESE R$) Q Mohly acquired quaiy of cold i aura milk, i aura PTL/IBGE o cold milk ad rasfer of coolig uis/oher uis of same compay. Z Mohly GNP, i millios of R$, projeced by he Ceral BACEN Bak of Brazil (BACEN) Z3 Variaio idex of added price of frui juice price, obaied IBGE hrough he IPCA. Margial cos fucio of reailers ad dairy compaies pw Mohly mea price of wholesale UHT milk lier, i R$. CEPEA/ ESALQ W Mea price charged per lier of diesel i disribuors i each ANP sae, i R$/lier V Mohly mea price of i aura milk lier received by milk producer, i R$/lier CEPEA/ES ALQ V3 Time red Addiioal isrumeal variables Lr Mea salary per worker i reail food marke, drik ad RAIS/MTE obacco, i R$. IPL Ieraioal price idex of dairy producs (IPL) price idex calculaed based o a weighed price average of buer, whole ad skimmed powdered milk, cheese ad casei. The weigh is doe by he world average of expors performed bewee 1998 ad. (Base1998- = 1). FAO Source: Prepared by auhors. The daa source cosiss, maily, i mohly publicaios of he Quarerly Milk Survey (PTL-IBGE) ad of he Naioal Cosumer Price Idex (IPCA), boh provided by IBGE. Aoher daa source was he Milk Bullei, published by he Ceer for Advaced Sudies o Applied Ecoomics (CEPEA). Fially, daa obaied i he aggregaed daase of he Isiue of Applied Ecoomic Research (IPEA) ad Aual Social Iformaio Repor (RAIS), prepared by he Miisry of Labor ad Employme (MTE) was also used. All moeary variables were deflaed by he Cosumer Price Idex (IPCA), so, all series are expressed as real values of Dec/9. Moreover, he exisece of seasoal compoes was ivesigaed i he series ha, whe ideified, he respecive series were deseasoalized by he X1 mehod of he US Cesus Bureau.

12 5. Resuls The firs sep i he ivesigaio of marke power exisece is prior delimiaio of releva marke, boh a he produc ad geographical dimesio. Badly specified markes resul i biased esimaes regardig marke power evideces (Sexo, ). However, as he aim of he sudy was o he wholesale marke of UHT milk, he aalysis was coceraed o he delimiaio of geographical limis of his marke. I he empirical lieraure, he geographical marke of UHT milk is commoly delimied o he aioal froiers (Neves ad Côsoli, 6 ad Azevedo ad Polii, 8). I he same sese, repors prepared by Secrearia for Ecoomic Moiorig (SEAE), for coceraio acs ivolvig milk secor firms, hey defie he geographical dimesio of marke as aioal, perishabiliy is o a barrier o he marke rage (as i case of i aura milk) ad he eveual exercise of marke power i a smaller regio ha i he aioal erriory would be easily impaired by UHT milk suppliers from oher regios 9. Theoreically, he releva marke mus be delimied hrough he Hypoheical Moopolis Tes (TMH), however, is applicaio is rarely viable, i his sese, some ecoomeric ess were used i he UHT milk price series o cofirm he hypohesis of a aioal marke. Accordig o Haldrup (3), his aalysis supplies idirec evidece for delimiaio of releva markes, i he impossibiliy of performig TMH. The logic of price behavior ess, also called approach of co-moveme of prices is ha producs ad/or differe regios should be grouped i oe sigle marke whe prices moved joily, a ay defiie sese. The resuls showed ha he price series i five saes are saioary i level ad he simple correlaio coefficies showed, i grea majoriy, superior o.8, evidecig hus, a srog relaio bewee he aalyzed series. Therefore, he fac ha series are iegraed of he same order, havig a elevaed correlaio coefficie, become oe more idex i favor of he exisece of a commo geographical marke. Fially, Table summarizes a survey carried ou for he Brazilia Associaio of Supermarkes (ABRAS) i 11, showig five leader sellig brads of UHT milk i he supermarkes, i seve Brazilia regios ad i Brazil as a whole. I is oiced ha amog he eigh preseed sraa, he presece of several brads i more ha oe regio occur simulaeously. Elegê brad sads ou wih 6 regisers, Bom Goso, wih 5, ad Parmala, Tirol ad Ialac brads, each oe wih 3 regisers. 9 See, for example, mergers acs.: /1-94 (ivolvig compaies Bom Goso ad Parmala), /1-91 (ivolvig compaies Leie Bom ad Gloria), /7-36 (ivolvig compaies Perdigao ad Eleva), amog ohers, approved by CADE wihou resricios.

13 Table. Rakig of five leader sellig brads of UHT milk i supermarkes. Rakig 1s d Brazil Elegê Bom Goso Norheas regio Bom Goso Valedourado MG, ES ad ier RJ Merop. regio RJ Merop. Regio SP Ier SP PR, SC ad RS Cemil Elegê Ialac Jussara Tirol Elegê Parmala Elegê Lider Bom Goso MS, GO ad DF Piracajub a Sai Gabriel 3rd Tirol Beâia Coochês Da Maa Parmala Sheffa Elegê LeieBom 4h Ialac Parmala Iambé Bom Goso Bom Goso Tirol Lad. Compelei e 5h Lider ALIMBA LAC Duchma Log Elegê Mu-mu Ialac Source: Magazie Superhiper (11). Therefore, based o he empirical lieraure, especially he defiiio foud i SEAE repors, referrig o coceraio acs i he milk secor, ad also o foud empirical evideces we delimied he wholesale marke of UHT milk as oe sigle marke formed by saes of GO, MG, PR, RS ad SP ad accordig o his delimiaio he equilibrium coceps of bilaeral oligopoly (BPT, MPT, RPT ad NST models) were esimaed for he commo geographical marke esablished by five aalyzed saes. For obaiig he variables ha will be used i he model, he series were buil hrough a weighed average, usig as weigh he milk quaiy acquired by dairy compaies i each sae. I his sese, Table 3 summarizes he descripive saisics of he used variables ad Figure 4 represes hree mai variables of he model (wholesale ad reail price ad quaiy of UHT milk). The models were esimaed usig mohly daa for he period of July of 4 up o December of 9, oalizig 66 observaios. Table 3. Descripive saisics of used variables. Variables Ui. Mea Maximum Miimum Sadard deviaio Obs p r R$/lier Q millio lier 1,1,56 1,84,71 916,38 95, Z millios of R$ 33,78 85, ,395, Z 3 idex p w R$/lier w R$/lier V R$/lier L r R$ IPL idex Source: Elaboraed by auhors from available daa.

14 ,5 1,4 1,3 R$/Lier 1,5 1,5 pr pw Q 1, 1,1 1,9 Bilios of liers jul/4 ou/4 ja/5 abr/5 jul/5 ou/5 ja/6 abr/6 jul/6 ou/6 ja/7 abr/7 Source: Prepared by auhors from available daa Table 4. Series of reail ad wholesale UHT milk price ad quaiy of idusrialized milk by dairy compaies. jul/7 ou/7 ja/8 abr/8 jul/8 ou/8 ja/9 abr/9 jul/9 ou/9,8 The resuls of oliear GMM esimaio of BPT, MPT, RPT ad NST models are i Table 5, however, as aeio focuses firsly o he selecio es bewee compeig equilibrium coceps, idividual ierpreaio of esimaes is doe subsequely. Table 6 summarizes hypohesis ess relaed o he choice of models. Moreover, superideificaio resricio ess are saisfied (lower par of Table 5). All ess did o rejec he ull hypohesis a up o 1% sigificace level ha super-ideificaio resricios are saisfied ad, cosequely, he esimaed models are valid.

15 Table 5. Esimaes of BPT, MPT, RPT ad NST models for wholesale UHT milk marke. Parameers BPT MPT RPT NST α (.55) (.547) (.671) (.667) α 1-8.7x1-7 * -8.x x1-7 * -8.7x1-7 * (5.x1-7 ) (4.98x1-7 ) (5.3x1-7 ) (5.x1-7 ) α -1.5x x x x1-7 (1.35x1-6 ) (1.9x1-6 ) (1.37x1-6 ) (1.33x1-6 ) α 3 1.3x x1-8 ** 1.3x x1-8 (8.1x1-9 ) (7.89x1-9 ) (8.5x1-9 ) (9.3x1-9 ) b -.1*** -1.67*** -.1*** -1.66*** (.385) (.351) (.386) (.336) b 1-1.8x x x x1-6 (1.69x1-6 ) (1.63x1-6 ) (1.75x1-6 ) (.8x1-6 ) b ***.169.8*** (.14) (.89) (.11) (.93) c 3.39***.995*** 3.33*** 3.1*** (.9) (.313) (.311) (.333) c x x x x1-6 *** 6 *** 6 *** 6 *** (3.3x1-7 ) (3.4x1-7 ) (3.75x1-7 ) (4.5x1-7 ) c 1.379*** 1.56*** 1.38*** 1.47*** (.96) (.11) (.14) (.114) c x1-8.35x1-9.53x1-6.83x1-9 *** 9 *** 9 *** 9 *** (1.7x1-9 ) (1.14x1-9 ) (1.35x1-9 ) (1.34x1-9 ) λ * (1.117) (1.) (1.1) (1.95) δ.638***.96*** (.31) (.347) γ 8.97x (.799) (.6) Tes Over Noe: sadard error i parehesis. *** Sigifica a 1%, ** sigifica a 5% ad * sigifica a 1%. Source: Sudy resuls The firs sep of he selecio es cosiss i esig he BPT model as parameric resricios i MPT (δ = ) ad RPT (γ = ) models. Observig he esimae resuls (Table 5), i is verified ha he esimae of parameer δ is,638 wih saisic equal o.776. I his sese, he ull hypohesis is rejeced H: δ = (BPT) i favor of aleraive Ha: δ> (MPT) a 1% sigificace level (oe-ailed es) 1. Whe parameer γ was observed, is 1 Based o MPT model, χ value, from likelihood-raio es for a es of hypohesis H : δ = (ATP) vs. H a : δ, is 7.655, wih p-value equal o.5.

16 esimae is 8.97x1-4 ad saisic equals.1, wih p-value equal o , which leads o o rejec he ull hypohesis H: γ = (BPT) i favor of aleraive Ha: γ> (RPT). Thus, he firs sigs are ha he MPT model (dairy idusry is price aker) is he mos adequae model o he srucure of daa. Table 6. Resuls of selecio hypoheses ess of model i wholesale marke of UHT milk. Tess Bases o Esimaes of he MPT Model H : δ = (ATP) H : δ = (ATP) vs. H a : δ > (PTP) vs. Ha: δ =.776 χ = p-valor =.3 p-valor =.5 Tess Bases o Esimaes of he RPT Model H : γ = (ATP) H : γ = (ATP) vs. H a : γ > (VTP) vs. H a : γ =.1 χ = 1.6x1-6 p-valor =.499 p-valor =.991 Tess Bases o Esimaes of he NST Model H : γ = (PTP) H : δ = (VTP) vs. Ha: γ (NST) vs. Ha: δ (NST) χ =.7 χ = 7.95 p-valor =.15 p-valor =.7 Noesed Hypohesis Tess H : PTP vs. Ha: VTP T =.871 p-valor =. Source: Sudy resuls While precedig ess sugges ha he MPT model is superior o he RPT model, i is possible ha differe coclusios could be foud whe MPT ad RPT models are compared side by side. Thus, as suggesed by Schroeer e al (), a idirec compariso is carried ou bewee models hrough he arificial esig model. The MPT model is he NST model wih resricio γ =. The χ likelihood-raio saisic es is.7, wih p-value equal o.15. The RPT model, however, is he NST model wih resricio δ = ad he χ likelihood-raio saisic es is 7.95, wih p-value equal o.7. These resuls cofirm he coclusios obaied i previous ess, as he ull hypohesis H: γ = cao be rejeced (MPT) i favor of he aleraive Ha: γ (NST), while he ull hypohesis H : δ = is rejeced (RPT) i favor of aleraive Ha: γ (NST). Thus, here have bee idirec evideces i favor of he choice of he MPT model over he RPT model, as he RPT, o MPT, is rejeced whe esed agais he NST esig model. 11 Based o VTP model, χ value, from likelihood-raio es for a es of he hypohesis H : γ = (BPT) vs.h a : γ, 1.6x1-6, wih p-value equal o.991.

17 Fially, adopig a more defesive approach, as suggesed by Schroeer e al (), he selecio es of oesed models proposed by Rivers ad Vuog () was used, i which saisic T, wih sadardized ormal disribuio was used o direcly compare wo equilibrium coceps, MPT ad RPT, hrough he followig hypohesis es: H : MPT = RPT versus H1: MPT, if es is egaive ad saisically sigifica; or H : RPT, if es is posiive ad saisically sigifica. The resul of he proposed es (T) was -.871, wih p-value =., herefore, saisically sigifica a 1% sigificace level. Thus, he ull hypohesis is rejeced, H : MPT = RPT i favor of he aleraive hypohesis H 1 : MPT, reiforcig he previously obaied resuls, i he choice of he MPT model over he RPT model. Hece, i is possible o coclude ha he srucure of daa is beer represeed by he MPT model ha by RPT ad BPT models. The ecoomical ierpreaio of his resul is ha he hypohesis of a perfecly compeiive marke ca be rejeced, i favor of a hypohesis of a marke wih o-compeiive price disorios. Furhermore, he resuls idicae ha hese disorios are resul of he oligopsoy exploraio power o he reailers side, while he dairy idusry demosraes a price-akig behavior. Regardig idividual ierpreaio of esimaes, aeio is give o he MPT model, which was he equilibrium cocep chose hrough selecio ess. Based of he obaied resuls (Table 5), i was oiced ha he slope of he demad curve faced by he reailer ( ˆ α ˆ 1 + α 3Z 3 ) is posiive i all sample pois, however, saisically o-sigifica. The esimae of α3 posiive ad saisically sigifica mees he hypohesis ha frui juice is a good subsiue o UHT milk. Neverheless, he esimae of parameer α, which caches demad dislocaios owig o reveue variaios, was o saisically sigifica. Regardig he margial cos curve of he dairy idusry, is slope, give by, c ˆ1 + cˆ3 V3 was egaive i all sample pois ad saisically sigifica, a 1% sigificace level. The supply elasiciy-price, calculaed i he middle poi of he sample, was -.57, also saisically sigifica, a 5% sigificace level. Neverheless, he posiive ad saisically sigifica value of c 3 idicaes ha he margial cos is growig alog he ime. I addiio, he posiive ad saisically sigifica esimae of c idicaes ha he margial cos grows wih he use of he mai ipu used i he maufacurig process, i oher words, i aura milk. The slope of he reailer s margial cos, give by esimae b 1, was saisically osigifica, demosraig ha he reailer s margial cos does o aler wih icreases of sold quaiy, whereas he esimae of b, posiive ad saisically sigifica, implies i margial cos icreases i relaio o icreases i eergy coss ad raspor. As for he coduc parameer, esimae of parameer δ, represes he degree of reailers oligopsoy power over he dairy idusry ad is esimae was.638 sigifica a 1% sigificace level. Therefore, accordig o he obaied resuls, evideces would idicae ha he wholesale marke of UHT milk cosiderably disaces from a perfecly compeiive marke. If cosiderig he symmerical equilibrium soluio of Couro ( = 1 / δ), he degree of oligopsoy power would be close o a marke srucure of symmerical duopsoy ( = 1.56).

18 From ecoomic heory, i is kow ha he capaciy of exercise of marke power is iversely proporioal o he supply elasiciy ad a way of verifyig disorios caused by he oligopsoy power would be o calculae he L idex, however, as a egaive supply elasiciy-price was foud, his resul causes values ha have o useful ecoomical meaig. I his sese, o coribue wih he obaied resuls i is possible appeal o markeig margis 1 o verify he dyamics ad ideify ay specific behavior of oal markeig margis of reailers ad dairy compaies. I ca be oiced i Figure 5, ha he oal markeig relaive margi remaied sable alog he period, approximaely 61%, i Jul/4 i was 59% ad i Dec/9 i was 63%. However, he dairy idusry s relaive markeig margi preseed a egaive red, while reailers relaive markeig margi grew alog he period. Alhough i is a syheic idicaor of marke performace, evideces mee he resuls obaied i he bilaeral oligopoly model. As reailers exercise oligopsoy power over he dairy idusry, his fac may be causig cosa icrease of he relaive markeig margi of he firs. %,8,7,6,5,4,3,,1 -,1 jul/4 ov/4 mar/5 jul/5 ov/5 mar/6 jul/6 ov/6 mar/7 jul/7 ov/7 mar/8 jul/8 ov/8 mar/9 jul/9 ov/9 MT ML MV liha de ed. Source: Sudy resuls Figure 5. Toal markeig relaive margis of UHT milk reailers ad wholesale dairy compaies 1 The markeig margi is give by he differece bewee he price for which a iermediae sells oe ui of produc ad he payme ha he does o acquire i. I his sese, markeig margis ca also be used as a efficiecy, or marke performace idicaor. Toal relaive markeig margis, of reailer ad dairy compay, are give, respecively, by: MT = ( pr w1 ) pr MV = ( pr pw) pr e ML = ( pw w1 ) pr, where p r, p w are UHT milk prices a reail level ad whole level, respecively ad w 1 is he raw milk price, paid o farmer.

19 6. Fial cosideraios Regardig he wholesale UHT milk marke, he obaied resuls allowed cocludig ha reailers exercise oligopsoy power over he dairy idusry. This resul mees he discussio foud i he ecoomical lieraure ha he resrucurig of he milk secor elevaed he power of reailers i he markeig of dairy producs. However, alhough some sudies argue ha he growh of he umber of idepede markes has eased he coceraio effecs ad ha he urover evideces bewee secor leaders represe a beeficial compeiive eergy, he fac ha UHT milk is a homogeeous produc ad of lile differeiaio, places reailers i a favorable posiio for exercisig marke power over he dairy idusry. The esimae value of he coduc parameer was.638 demosraig ha he marke is cosiderably far from a perfecly compeiive marke, everheless, he disorios caused by his marke power could o be calculaed as he supply elasiciy-price of he dairy idusry was egaive. I his sese, he empirical evideces observed by he behavior of relaive markeig margis, corroboraed he foud resuls, as hey showed a growig red of reailers relaive margi over he dairy idusry s relaive margi. This resul has impora implicaios, sice here is marke power i a chai lik, his effec exeds alog he whole producive chai ad implies i he reducio of producio ad sales a a global level. Moreover, here may be grea disorios from he poi of view of disribuio of excesses amog ages of he milk chai. Therefore, fuure sudies ha quaify hese disorios, are of exreme relevace so ha he impacs produced by marke power ca be evaluaed from he loss of ecoomic well-beig ad redisribuio of excesses sadpoi. REFERENCES AZEVEDO, P. F. de; POLITI, R. B. 8. Cocorrêcia e esraégia de precificação o sisema agroidusrial do leie. Revisa de Ecoomia e Sociologia Rural. Piracicaba, SP, v. 46(3), p BARROS, Geraldo Sa'Aa de Camargo e al.. 4. Mudaças esruurais a cadeia do leie: reflexo sobre os preços. Revisa de Políica Agrícola. Brasília DF, ao 13,. 3, p BRESNAHAN, T. F The Oligopoly Soluio Cocep is Ideified. Ecoomics Leers, p CONCHA-AMIN, M.; AGUIAR, D. R. D. de. 6. Coceração idusrial, fusões e urover o seor supermercadisa brasileiro. Revisa Gesão & Produção. Vol. 13(1), p DAVIDSON, R.; MACKINNOM, J.G. 3. Ecoomeric Theory ad Mehods. Oxford Uiversiy Press, 768p. EVIEWS. Eviews 7 User s Guide. 1. Quaiaive Micro Sofware, LLC. Vol. 1 e.

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