Integrating the Structural Auction Approach and Traditional Measures of Market Power



To illustrate the auction model considered in this study, consider a cattle market
with few packers purchasing cattle through a sequence of first-price sealed-bid auctions
in the context of IPV. Packers’ valuation (R
ij) is defined as the price of processed beef
(prj) minus the marginal cost (cij) of processing cattle into beef. That is Rij
= prj -cij.
Although competing packers do not know opponents’ valuation, they know that all
valuations R, including their own, come from a common distribution G (•) which is
continuous with density g(∙).

As discussed previously, packer’s valuation depends on the processing technology
employed. Following Sexton (2000), we assume that beef packers use cattle and non-
farm processing inputs to produce beef, y r, using a quasi-fixed proportion processing
technology. Such technology allows no substitution between cattle, y f, and a vector of
non-farm inputs,
v, but may allow substitution between non-farm inputs. Processors’
technology is represented as:

(2.1)                              yr = min{ yf /Y, g( v)},

where γyf/yr is the conversion factor between cattle and processed product. Packer’s
profit maximization requires that
yr = yf /γ = g (v).

In maximizing expected profits, πi, the ith risk-neutral packer faces the following
maximization problem (Bajari and Hortaçsu, 2005):

(2.2)                     max πj = yir (Rj - Pf )G(^(Pf ))N'-1,

p

where i (i = 1,..., I) is a subscript for packer, andj (j = 1,..., T) is a subscript representing
the
'th cattle lot, Ri' = pr' -ci' is packer i’s per-unit valuation of processed product yi',
produced at processing cost
cij, and sold at price prj ; pif is packer i’s dollar bid for cattle,



More intriguing information

1. Connectionism, Analogicity and Mental Content
2. Notes on an Endogenous Growth Model with two Capital Stocks II: The Stochastic Case
3. New urban settlements in Belarus: some trends and changes
4. A Rare Presentation of Crohn's Disease
5. Fiscal Insurance and Debt Management in OECD Economies
6. Structure and objectives of Austria's foreign direct investment in the four adjacent Central and Eastern European countries Hungary, the Czech Republic, Slovenia and Slovakia
7. The name is absent
8. The name is absent
9. EU Preferential Partners in Search of New Policy Strategies for Agriculture: The Case of Citrus Sector in Trinidad and Tobago
10. El Mercosur y la integración económica global
11. Disentangling the Sources of Pro-social Behavior in the Workplace: A Field Experiment
12. THE WAEA -- WHICH NICHE IN THE PROFESSION?
13. Survey of Literature on Covered and Uncovered Interest Parities
14. IMPROVING THE UNIVERSITY'S PERFORMANCE IN PUBLIC POLICY EDUCATION
15. Comparative study of hatching rates of African catfish (Clarias gariepinus Burchell 1822) eggs on different substrates
16. A Regional Core, Adjacent, Periphery Model for National Economic Geography Analysis
17. The name is absent
18. Applications of Evolutionary Economic Geography
19. The name is absent
20. AGRICULTURAL PRODUCERS' WILLINGNESS TO PAY FOR REAL-TIME MESOSCALE WEATHER INFORMATION