Examining the effect of market power on sustainability: adding another market failure to the sustainability discourse

Abstract

From an economic perspective the reason for unsustainable behavior is based on the existence of externalities and missing markets or common goods (Common and Stagl 2005, Wiesmeth 2012). Thus, the main focus of tackling unsustainable outcomes and behavior is on internalization (Bithas 2011, van den Bergh 2012) and on creating new markets as international endeavors in the realm of greenhouse gases or climate change (UNFCCC), biodiversity (TEEB) and land degradation (ELD) illustrate. Externalities, missing markets and common goods are one form of market failure, which influence on sustainability is well studied. Other market failures, like market power, on the other hand do not enter the field of sustainability science so far. This paper introduces the impact of market power on sustainability particularly in the agrifood sector. In doing so another economic factor is added to the analysis of sustainability, making a significant contribution to the field of sustainability science. Market power is especially of importance for the agrifood sector as concentration in this sector increases (FAO 2015). Rising concentration in the agrifood sector is accompanied by the fear of increasing prices for consumers and falling prices for farmers. Both instances may have serious implications for environmental, social as well as economic sustainability. If market power affects sustainability policy makers need to take it into account and put adequate measures in place to tackle the adverse effects on sustainability of market power. Thus, this paper discusses if and why market power should be taken into consideration as an additional economic factor influencing sustainability. In this regard an overview of sustainability and sustainability assessment as well as on market power with an focus on the agrifood sector is given. The literature review in these two areas reveals that considering market power is necessary as it can affect the social, environmental as well as economic aspect of sustainability. Therefore, it is concluded that more research in this realm is needed to further investigate the relationship, the exact manifestation of market power on sustainability and strategies to tackle negative impacts on sustainability.