Assessing the Degree of Market Power in the Rice Milling Industry of Sri Lanka: An Application of the NEIO Approach

This study used the New Empirical Industrial Organization (NEIO) approach to estimate the presence and factors affecting the market power of the rice milling industry in Sri Lanka. Annual data from 1982 to 2019 were used for the analysis. The miller’s pricing and demand models were estimated using the non-linear Seemingly Unrelated Regression (SUR) estimation technique. The estimated conjectural variation elasticity and the Lerner index of the Sri Lankan rice milling industry were 0.348 and 0.677 correspondingly and the results were significantly (p < 0.05) different from zero and one respectively. This depicts that the rice milling market exhibits oligopoly power in setting the price of rice above its marginal cost. Market power was significantly (p < 0.05) reduced by the implementation of the Government Ceiling Price (GCP) on rice. The study findings suggest the importance of consistent implementation and monitoring of GCP policies to control the market power of the rice milling industry in Sri Lanka. JEL Classification: D22, D43, L00