A Strategic Rationale For Captive Supplies
Partial backward integration is prevalent in many agricultural and natural resource processing industries. A strategic rationale for partial backward integration is developed for a dominant firm with a competitive fringe purchasing from competitive input suppliers. A partially backward integrated dominant firm potentially can increase profit through production efficiency gains and through a lower price for externally purchasing input. The optimal degree of backward integration results when the dominant firm's profit from exerting monopsony market power in the external spot market equals its profit from producing raw input internally, less the incremental cost of acquiring internal raw input production capacity. Comparative statics results are consistent with recent empirical studies of the beef packing industry.
Volume (Year): 24 (1999)
Issue (Month): 01 (July)
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- Schroeter, John R. & Azzam, Azzeddine M., 1991.
"Implications of Increased Regional Concentration and Oligopsonistic Coordination in the Beef Packing Industry,"
Staff General Research Papers
11109, Iowa State University, Department of Economics.
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The Review of Economics and Statistics,
MIT Press, vol. 70(1), pages 158-62, February.
- Schroeter, John R., 1988. "Estimating the Degree of Market Power in the Beef Packing Industry," Staff General Research Papers 11114, Iowa State University, Department of Economics.
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- 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.
- Koontz, Stephen R. & Garcia, Philip, 1997. "Meat-Packer Conduct In Fed Cattle Pricing: Multiple-Market Oligopsony Power," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 22(01), July.
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