Week 15_case study

Week 15_case study - Department of Food and Resource...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
LESE204 Department of Food and Resource Economics Market Power and Policy Effects in the Korean Infant Formula Industry - Case Study-
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
LESE204 Department of Food and Resource Economics Over 90% of new-born babies are primarily fed infant formula There are only four companies that produce infant formula and the market share of the two largest firms is about 88% Now the infant formula industry in Korea faces two challenges: 1) Decreasing birth rate - New born babies: 610 thousand (1996) 451 thousand (2006) 2) Due to high feed costs High pressure on raising raw milk price 1. Infant formula industry in Korea
Background image of page 2
LESE204 Department of Food and Resource Economics Infant formula manufacturing process 1 . Whey protein, vitamins, mineral are mixed with fluid milk. 2. Mixture is sterilized. 3. Sterilized milk is sprayed, dried and condensed. 4. Repetition of step 3 until liquid becomes powder. Fluid milk is the primary material for infant formula. 1. Infant formula manufacturing process
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
LESE204 Department of Food and Resource Economics Dairy Committee - Approximately 30% of milk producers in Korea supply milk at the supported price through the Korea Dairy Committee Administered Price of raw milk - Dairy committee sets the raw milk price by considering milk producers producing costs and national inflation rate - This “administered price” is the reference for the contracts between private companies and individual farmers 2. Some policies related to milk
Background image of page 4
LESE204 Department of Food and Resource Economics Definition of Market power - Lerner index: L=(p-mc)/p (L=1/ η for monopoly, L= θ / η for oligopoly) Marginal cost - SCP approach assumes true mc is known - Iwata (1974) used estimated marginal cost - Applebaum (1982) assumed cost function and estimated θ Assumed functional forms for cost (or MC ) - Genesove and Mullin (1988): assumed linear marginal cost for raw material price - Applebaum (1982), Huang and Sexton(1996): adopted Generalized Leontief Cost function 2. Issues in measuring market power raw kP c mc 0
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
LESE204
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/25/2012 for the course MAR 3023 taught by Professor Lutz during the Fall '08 term at University of Florida.

Page1 / 19

Week 15_case study - Department of Food and Resource...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online