Structural Change and Market Power in the U.S. Food Manufacturing Sector

Abstract

This study develops an intertemporally linked market model to explore the relationships between price-cost margins, market concentration, and advertising outlay. The study used data from 48 four-digit SIC (standardized industrial classification) codes for the Food and Tobacco Processing Industries during the 1970s, 1980s, and 1990s. The authors` findings provide evidence that both high and low levels of performance provide signals to industries to consolidate, but for obvious and different reasons. Further, increased consolidation leads to increased entry barriers (advertising) and higher profits to the industry. Our findings are supportive of both Chicago and Traditionalist Schools of thought about antitrust enforcement: Neither emerges in a dominant position. Endogeneity issues and findings within the intertemporal structure cast considerable doubt about overly simplistic structure–performance paradigms of firm behavior. [JEL Code: L11, L40, L66]. © 2009 Wiley Periodicals, Inc.