Market Power and Sustainability: A Novel Approach

Abstract

Increasing market concentration has caused the rise of market power issues. Particularly in the agri-food sector, increased concentration and thus market power can be observed. Due to the hourglass shape of the value chain within the agri-food system, markets tend to be concentrated on retail as well as on farminput (seeds, fertilizers, etc.) level. At these levels market power concerns arise, whereat negative effects might play out most on farm level, as it is the level flanked by market concentration. Without a doubt, sustainability is a main challenge of the 21st century. Sustainability entails the notion to maintain the ability to meet people’s needs in the present and in the future. This ability is put at risk as human resource extraction, use and waste production overshoot planetary boundaries. Many initiatives try to support sustainability and a sustainability transition. Among those incentives are endeavors that try to find the cause and the solution to sustainability problems in the market sphere. Market failures, most prominently externalities and missing markets, have been identified to be a cause and potential cure for sustainability problems. Given the rising relevance of market power issues, the question arises whether market power can be identified as cause and cure for the lack of sustainability too. This thesis aims at answering this question. This study investigates in-depth the characteristics of the potential relationship between market power and sustainability. To investigate the characteristics of this relationship, the following questions have been posed: Do both phenomena influence each other mutually (Chapter 1 and 2)? Is the relationship positive or negative for sustainability (Chapter 2, 3 and 7)? What does the characteristic of the relationship imply (Chapter 4 and 7)? Seven chapters are dedicated to answering these questions. That a relationship between market power and sustainability does indeed exist is briefly outlined in Chapter 1. A more thorough analysis of whether market power and sustainability are related is presented in Chapter 2 with a literature review to gain insights of whether the connection between market power and sustainability has already been studied. Supplementary to the literature review a network analysis is conducted providing an overview over the existing literature and outlining common themes within this body of literature. Results from Chapter 1 and 2 show that market power and sustainability are connected. However, understanding the connection to its full extent requires market power to be understood in all its complexity. Accordingly, both phenomena, market power and sustainability, need to be analyzed separately to provide a better understanding. Chapter 3 dissects the market power phenomenon, which then allows to unravel the aspects as well as the dynamics of power. The dissection of market power follows the work of Foucault, whereas other literature on power is integrated into the cornerstones developed by Foucault. Moreover, the classification of power developed by Foucault is amended to include the notion of a paradigm. This idea is lent from systems thinking and allows to add a superstructure to the structural considerations of power. Further, by using a systems thinking approach the dynamics of the power struggle can be depicted allowing to understand phenomena such as Green Washing. While Chapter 3 focuses on market power, Chapter 4 takes a closer look at sustainability. Specifically, the notion of decoupling within the context of the Green Revolution is studied. This chapter provides a crucial contribution to identify sustainability narratives that are assimilated by the current predominant paradigm; economic growth. Hence, it explains why weak sustainability will never create sustainability as it is in itself based on a system which is unsustainable. Thus, it explains why the notion of weak sustainability is an oxymoron. Chapters 3 and 4 deliver answers to the subquestions regarding the understanding of the characteristics of the relationship between market power and sustainability. While Chapter 2 illustrates that the relationship is positive, Chapter 3 and 4 highlight that whether a positive or a negative relationship is identified depends on the normative stance one takes. Chapter 5 and 6 provide case studies that exemplify how the gained insights about market power and sustainability can be used for the analysis of market power issues in the agri-food sector. Systems thinking is employed in Chapter 5 to analyze market power within the Belgian sugar beet sector. A causal loop diagram is developed to unravel the dynamics that cause market power issues within this specific case. Chapter 6 comprises of a comparative case study. The Belgian sugar beet value chain is confronted with the German rapeseed value chain. The aim of this chapter is to study potential strategies of farmers to increase or maintain farm income. In both case studies power imbalances are an issue. Finally, Chapter 7 concludes the thesis by providing an overview on how the research questions are answered and expands on the value of developed schemes and approaches. Chapter 7 recapitulates that Chapter 1 and 2 illustrate that a relationship between market power and sustainability does exist. Chapter 2 does further expand on how the two phenomena are connected, by identifying aspects of market power related to sustainability issues. Moreover, Chapter 2 does also show that the relationship between market power and sustainability is mutual, by discussing examples of the reviewed literature. The elaborations on power in Chapter 3 are needed to answer whether the relationship between market power and sustainability is positive or negative. Power as such is neither positive nor negative, but it depends on what it is used for. The same applies to the relationship between market power and sustainability. Market power can be used to support sustainability, but it does not have to. Another valuable result from Chapter 3, which relates to the implications of the characteristics of the relationship between the two phenomena, is that whether market power has a positive or negative effect depends on the overarching goal of our socio-economic system. This also applies to the effect of sustainability on market power. Chapter 4 illustrates how the understanding of sustainability itself is adapted to fit within the goals of our socio-economic system, striving for growth. It could be understood that sustainability is positive for market power, as it provides a potent business model that provides above average profits. Nevertheless, the question remains whether this is positive or not. Is market power something to be aspired or not? While this may seem to be a strange question, one may also keep in mind that market power can support a sustainability transition. However, these are normative questions that call for further discussion. It needs to be decided whether market power is an acceptable tool to support sustainability. It needs to be discussed what kind of sustainability should be supported. Chapter 4 makes clear that in order to achieve a sustainable state, weak sustainability has to be abandoned. The implications for market power are then discussed in Chapter 7. In short, this thesis shows that market power and sustainability are connected. Due to the complexity of both phenomena as well as due to the complexity of our socio-economic system there are, however, no straightforward answers to the posed research questions. A main point to be highlighted is to understand market power in all its complexity and not limiting it to the market sphere. This allows to understand the connection between market power and sustainability as a struggle of paradigms; namely the growth and the sustainability paradigm. Further research particularly in relation with transition theory is suggested. Other future research avenues could focus specifically on the social dimension of sustainability and market power, as well as on the relationship among market power, sustainability and resilience.