Integrating the Structural Auction Approach and Traditional Measures of Market Power

The option METHOD = SJPI in the KDE Procedure is used to request bandwidths
computed using the SJPI.

Next, the estimates of bid shading for each successful transaction are computed
using equation (2.4a), as:
where P_i^w_j ^f is a winning bid on the jth lot of cattle won by packer i.

Estimation of a Traditional NEIO Model

This section reports the procedures used to estimate markups using a traditional NEIO
model represented by equation (2.9a). The estimate of the auction model is compared
with an estimate of price markdowns computed directly from the data.

Before equation (2.9a) can be estimated, however, it is necessary to define
packers’ processing cost equation. Following Azzam (2001), packer’s processing cost
function C(y_i^r ) is represented by the Generalized Leontief, as:

(2.18)       C⁽ yr^{, v)} = yr ∑∑ ^α km (vkvm ^{)1/2 +} yrt ∑ ^λkvk ⁺⁽ yr ⁾² ∑ ^βkvk ^,

km              k          m

where y_i^r is packer i’s output, v is a price vector of non-farm inputs such as labor and
capital, t is a time trend, andα_km , λ_k, and βk are parameters to be estimated. Notice that,
with the exception of cattle, all non-farm inputs needed for beef processing remain
constant in the experimental market. Therefore, packer’s processing cost represented by

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