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Testing the Monopsony-Inefficiency Incentive for Backward Integration

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  • Azzeddine Azzam

Abstract

In theory, monopsony at one stage in a vertically related market provides an incentive for backward integration into the adjacent competitive stages. By integrating backward, a monopsonist internalizes the monopsony inefficiency due to underemployment of the factor produced upstream. However, little is known about the importance of such incentive in practice. In this paper I provide an empirically implementable model to test the monopsony-inefficiency incentive for vertical integration. For illustration, the model is applied to the U.S. beef slaughter industry. Findings seem to support the monopsony-inefficiency incentive for backward integration by the industry into the live cattle market. Copyright 1996, Oxford University Press.

Suggested Citation

  • Azzeddine Azzam, 1996. "Testing the Monopsony-Inefficiency Incentive for Backward Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 585-590.
    • Handle: RePEc:oup:ajagec:v:78:y:1996:i:3:p:585-590
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    Citations

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    Cited by:

    1. Martinez, Steve & Zering, Kelly, 1997. "Vertical Coordination and Consumer Welfare: The Case of the Pork Industry," Agricultural Economic Reports 262048, United States Department of Agriculture, Economic Research Service.
    2. Ward, Clement E., 2002. "A Review of Causes for and Consequences of Economic Concentration in the U.S. Meatpacking Industry," CAFRI: Current Agriculture, Food and Resource Issues, Canadian Agricultural Economics Society, issue 3, pages 1-28, January.
    3. Hudson, Darren, 2000. "Contracting In Agriculture: A Primer For Farm Lenders," Research Reports 15789, Mississippi State University, Department of Agricultural Economics.
    4. Martinez, Steve W. & Smith, Kevin E. & Zering, Kelly D., 1998. "Analysis of Changing Methods of Vertical Coordination in the Pork Industry," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 30(2), pages 301-311, December.
    5. Sesmero Juan, 2018. "Spatial Pricing in Uncontested Procurement Markets: Regulatory Implications," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 16(1), pages 1-14, January.
    6. Sanjib Bhuyan, 2002. "Impact of Vertical Mergers on Industry Profitability: An Empirical Evaluation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(1), pages 61-79, February.
    7. Jinho Jung & Juan Sesmero & Ralph Siebert, 2020. "Spatial Differentiation and Market Power in Input Procurement: Evidence from a Structural Model of the Corn Market," CESifo Working Paper Series 8088, CESifo.
    8. Bhuyan, Sanjib, 2003. "What Determines Vertical Mergers in U.S. Food Manufacturing Industries?," 2003 Annual meeting, July 27-30, Montreal, Canada 22146, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Pritchett, James G. & Liu, Donald J., 1999. "Modeling Price Impacts Of Backward Vertical Integration In The Us Pork Industry," 1999 Annual meeting, August 8-11, Nashville, TN 21594, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Azzam, Azzeddine M., 1998. "Competition in the US meatpacking industry: is it history?," Agricultural Economics, Blackwell, vol. 18(2), pages 107-126, March.
    11. Pace Guerrero, Ignacio, 2010. "Producción de atributos de calidad: efectos sobre la estructura de oferta y del mercado. Un análisis aplicado al mercado argentino de leche fluida," Nülan. Deposited Documents 1334, Universidad Nacional de Mar del Plata, Facultad de Ciencias Económicas y Sociales, Centro de Documentación.
    12. Love, H. Alan & Capps, Oral, Jr. & Williams, Gary W., 2010. "Concentration In Beef Packing and Slaughter Cattle Pricing," Journal of Food Distribution Research, Food Distribution Research Society, vol. 41(3), pages 1-17, November.
    13. Jinho Jung & Juan Sesmero & Ralph Siebert, 2022. "A structural estimation of spatial differentiation and market power in input procurement," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(2), pages 613-644, March.
    14. Bhuyan, Sanjib, 2001. "Impact Of Vertical Mergers On Food Industry Profitability: An Empirical Evaluation," 2001 Annual meeting, August 5-8, Chicago, IL 20469, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    15. Pritchett, James G. & Liu, Donald J., 1998. "Estimating Backward Integration In A Primary Input Market: The Case Of U.S. Hog Industry," Conference Papers 14480, University of Minnesota, Center for International Food and Agricultural Policy.
    16. Love, H. Alan & Burton, Diana M., 1999. "A Strategic Rationale For Captive Supplies," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(1), pages 1-18, July.
    17. Holloway, Garth J. & Hertel, Thomas W. & Han, Frank M., 1997. "Does Market Power Matter?," Working Papers 225884, University of California, Davis, Department of Agricultural and Resource Economics.
    18. Stephen R. Koontz & John D. Lawrence, 2010. "Impacts of alternative marketing agreement cattle procurement on packer costs, gross margins, and profits: evidence from plant-level profit and loss data," Agribusiness, John Wiley & Sons, Ltd., vol. 26(1), pages 1-24.

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