Institutional Market Power in Comté: Insights from a ‘Double Marginalisation’ Model

This article explores the economic efficiency of a horizontally and vertically coordinated industry where upstream producers are atomised, but downstream processors are few, explicitly considering participation incentives and allowing the coordinated industry to exert market power towards buyers. The model offers insight into the probable social impacts of the government-sanctioned supply control scheme in place in the French Comté cheese market, suggesting it falls short of constituting a Pareto-improvement compared with a laissez-faire situation. More generally, our theoretical model provides guidance to identify instances where encouraging industry coordination may be socially desirable. We formally introduce the concept of ‘seller-equivalent degree of overall market power’ of the separated industry, a market characteristic comprised of measurable or inferable parameters, the value of which is shown to determine the potential for Pareto improvements through industry integration.