Application of measuring market power and costefficiency in the milk sub-sector in Turkey compared to other European countries

A significant increase of concentration in the fluid milk sub-sector of Turkey has heightened concerns about firms' ability to exercise market power. To assess the extent to which firms have exercised market power, this paper develops an empirical model that captures both market power and cost efficiency components of firms' behavior. These components are derived with a theoretical framework that is known as the 'New Empirical Industrial Organization (NEIO)' approach. Data used in the empirical model is for the 1980-1998 time periods and the empirical results show an increase in market power that is ameliorated somewhat by declining processing costs for milk processors. Furthermore, these results suggest that the market power effect outweighs the cost efficiency effect.