Market Power and Supply Shocks: Evidence from the Orange Juice Market
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The orange juice market is a "weather market" because of its high geographical concentration and the natural characteristics of orange trees. A few hours of a freeze in Florida is enough to cause a supply shock to the orange juice market. How do oligopolistic firms react to supply shocks - do they become more collusive or more competitive? This paper empirically examines the proposition and finds that the level of market power of orange juice firms decreases significantly, and the market becomes more competitive during supply shocks even though prices rise.