Oligopoly power and allocative efficiency in US food and tobacco industries

This paper computed oligopoly-induced allocative efficiency losses in 38 US food and tobacco manufacturing industries using conduct, demand and cost parameters estimated with a New Empirical Industrial Orgazisation (NEIO) approach Allocative efficiency loss estimates in these industries amounted to $15.2 billion or over five per cent of sales for 1987. Statistical tests showed that these losses are generally higher than previous estimates, possibly due to the allowance of non-constant marginal costs and revised estimates of demand elasticities and conduct.