Measuring Market Power in the Sugar Industry of Pakistan

This study estimates market power in the sugar industry of Pakistan using data from 2005 (Q1) to 2014 (Q2). The empirical estimates indicate that the demand for sugar is inelastic and that the consumption of sugar peaks during the winter season but declines in the summer. Furthermore, the results of conduct parameter suggested that the sugar mill prices exceeded the marginal cost of sugar by twelve percent, while the Lerner index sugar mill fixed prices were found to be seventy percent higher than the marginal cost. Overall, the present findings identify market power as the main factor behind the unfair consumer exploitation, in terms of regulating the high cost price margins and enabling the sugar mills to charge premium prices (above marginal cost) in Pakistan. Current findings assert the need for government to protect the local consumer by taking prudent measures against customer exploitation. In this regard, the Competition Commission of Pakistan is expected to establish an environment for fair competition through new permits for import of sugar from other countries to dismantle the monopoly of sugar mill owners in Pakistan.