Measurement of industry conduct with a latent structure

Empirical industrial organization economists have long been concerned with measuring the degree of competition in markets and understanding its underlying determinants, but they have faced serious difficulties, including data requirements and misspecification issues. This paper offers an alternative method of estimating market power and industry conduct. Market power is estimated for the fresh apple industry with a latent modelling structure. Specifically, variations of the MIMIC model are adapted to this problem. These variations are the multiple-indicators (MI) and the filtered-measure (FM) approaches. The results suggest that although the Washington apple industry has a large market share, it does not exercise market power. Factors that mitigate the exertion of market power in the fresh apple market include competitor shipments and retailer power.