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Competition, Bargaining Power, and the Cattle Cycle

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Author Info
Crespi, John M.
Xia, Tian
Jones, Rodney

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Abstract

Cattle production follows a dynamic cycle that has often been analyzed, and cattle markets receive much scrutiny because of the potential for buyer market power. The relationship between the two has been little studied, however. This paper provides a simple conceptual framework to study how the cattle cycle and market concentration jointly affect the bargaining power of producers and packers yielding the following main results. Not surprisingly, a larger cattle stock reduces producers' bargaining position, which results in a lower fed cattle price. More importantly, however, the cattle stock's negative effect on price is magnified by the market concentration in beef packing. Thus, the cycle itself is very importantly related to a posited cycle of bargaining power between cattle producers and beef packers. Secondly, the model also shows how beef packers may use the special feature of cattle as both consumption and capital goods to lower the cattle price by influencing cattle inventories.

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Publisher Info
Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida with number 6263.

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Date of creation: 2008
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Handle: RePEc:ags:aaea08:6263

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Related research
Keywords: Livestock Production/Industries;

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  1. Roland Maude-Griffin & Roger Feldman & Douglas Wholey, 2004. "Nash bargaining model of HMO premiums," Applied Economics, Taylor and Francis Journals, vol. 36(12), pages 1329-1336, July. [Downloadable!] (restricted)
  2. Schroeter, John R, 1988. "Estimating the Degree of Market Power in the Beef Packing Industry," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 158-62, February. [Downloadable!] (restricted)
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  3. Azzam, Azzeddine M, 1997. "Measuring Market Power and Cost-Efficiency Effects of Industrial Concentration," Journal of Industrial Economics, Blackwell Publishing, vol. 45(4), pages 377-86, December. [Downloadable!] (restricted)
  4. Catherine J. Morrison Paul, 2001. "Cost Economies And Market Power: The Case Of The U.S. Meat Packing Industry," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 531-540, August. [Downloadable!] (restricted)
  5. John M. Crespi & Richard J. Sexton, 2004. "Bidding for Cattle in the Texas Panhandle," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 86(3), pages 660-674, 08. [Downloadable!] (restricted)
  6. Azzam, A & Park, T, 1993. "Testing for Switching Market Conduct," Applied Economics, Taylor and Francis Journals, vol. 25(6), pages 795-800, June.
  7. Schroeter, John R. & Azzam, Azzeddine, 2003. "Measuring Market Power in Multi-Product Oligopolies: The U.S. Meat Industry," Staff General Research Papers 11112, Iowa State University, Department of Economics.
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  8. Rosen, Sherwin & Murphy, Kevin M & Scheinkman, Jose A, 1994. "Cattle Cycles," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 468-92, June. [Downloadable!] (restricted)
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  9. John Crespi & Richard Sexton, 2005. "A Multinomial Logit Framework to Estimate Bid Shading in Procurement Auctions: Application to Cattle Sales in the Texas Panhandle," Review of Industrial Organization, Springer, vol. 27(3), pages 253-278, November. [Downloadable!] (restricted)
  10. Harl, Neil E. & McEowen, Roger A. & Carstensen, Peter C., 2002. "The 2002 Senate Farm Bill: The Ban on Packer Ownership of Livestock," Staff General Research Papers 10093, Iowa State University, Department of Economics.
  11. A. M. Azzam, 1992. "Testing The Competitiveness Of Food Price Spreads," Journal of Agricultural Economics, Blackwell Publishing, vol. 43(2), pages 248-256. [Downloadable!] (restricted)
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