Food processing industry is one of the large industrial groups in developing countries, which plays an important role in the economic development of these countries. On the other hand, with the development of the food industry, food security and food supply are very important in any country.
In a general view, the markets are divided into two groups: the first group are markets with perfect competition and the second group are markets with a monopoly structure. One of the important features of markets that determines its type is the ability of companies to price and determine the amount of production. If firms do not affect these two factors, the market has perfect competition. If firms have the ability to influence the price of products, this market is non-competitive and a concept called market power arises. In general, not only the market power is the company's ability to set a price higher than the competitive situation, but it does not allow its share of sales to decrease.
The existence of collusion in the markets can make them incomplete and away from full competition. In economics and especially in industrial organizations, market power is the ability of a company to increase the profitability of the market price of a good or service relative to the marginal cost. In perfectly competitive markets, market participants have no market power. A firm with total market power can raise prices without losing customers to competitors. Companies that have the power to set prices are called "price makers" or "price setters", while companies that do not have it are called "price takers". Significant market power occurs when prices exceed marginal cost and long-run average cost, so the firm makes an economic profit.
A firm with market power has the ability to individually affect the total quantity or prevailing price in the market. Price makers face a downward-sloping demand curve, such that an increase in price leads to a decrease in quantity demanded. A reduction in supply as a result of the exercise of market power reduces economic weight, which is often considered socially undesirable. As a result, many countries have additional antitrust laws to limit the ability of companies to build market power. Such laws often regulate mergers and sometimes introduce judicial powers to compel divestitures. A company usually has market power because it controls a large part of the market. In extreme cases - monopolies and monopolies - the company controls the entire market. However, market size alone is not the only indicator of market strength. If there are no barriers to entry or exit, highly concentrated markets may be competitive, limiting the incumbent firm's ability to raise its price above competitive levels.
Market power gives firms the ability to engage in unilateral anti-competitive behavior. Some of the behaviors that firms with market power are accused of engaging in include predatory pricing, product tying, and creating excess capacity or other barriers to entry. If no individual market participant has significant market power, anti-competitive behavior is committed only through collusion or the exercise of collective power by a group of market participants. Lerner index and Herfindahl index may be used to measure market power.
Examining the market power of different industries allows policy makers to design and present a model for processing food and beverage manufacturers to guide them toward the product that has the greatest social benefit. The estimation of market power in food and beverage industries in Iran is small compared to similar studies abroad.