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Cost Economies And Market Power: The Case Of The U.S. Meat Packing Industry

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  • Catherine J. Morrison Paul

Abstract

Increasing size of establishments and resulting concentration in U.S. industries may stem from various types of cost economies. In particular, scale economies arising from technological factors embodied in plant and equipment may be a driving force for such market structure changes. In this case, typical market power measures like Lerner indices can be misleading: if scale (cost) economies prevail, cost efficiencies rather than market deficiencies may actually underlie the observed patterns. In this study, I provide measures of scale economies and market power for the U.S. meat packing industry, whose increased consolidation and concentration have raised great concern in policy circles. The results suggest that this trend has been motivated by cost economies, but that little excess profitability exists, and on the margin the potential for taking further advantage of such economies has become minimal. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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  • 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.
  • Handle: RePEc:tpr:restat:v:83:y:2001:i:3:p:531-540
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    1. Gilbert, Richard J, 1989. "The Role of Potential Competition in Industrial Organization," Journal of Economic Perspectives, American Economic Association, pages 107-127.
    2. Catherine J. Morrison & Donald Siegel, 1997. "External Capital Factors And Increasing Returns In U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, pages 647-654.
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    5. Azzeddine M. Azzam & John R. Schroeter, 1995. "The Tradeoff between Oligopsony Power and Cost Efficiency in Horizontal Consolidation: An Example from Beef Packing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(4), pages 825-836.
    6. Morrison, Catherine J, 1988. "Quasi-Fixed Inputs in U.S. and Japanese Manufacturing: A Generalized Leontief Restricted Cost Function Approach," The Review of Economics and Statistics, MIT Press, pages 275-287.
    7. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
    8. Berndt, Ernst R & Morrison, Catherine J, 1981. "Capacity Utilization Measures: Underlying Economic Theory and an Alternative Approach," American Economic Review, American Economic Association, pages 48-52.
    9. A. P. Lerner, 1934. "The Concept of Monopoly and the Measurement of Monopoly Power," Review of Economic Studies, Oxford University Press, vol. 1(3), pages 157-175.
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    Cited by:

    1. Duvaleix-Tréguer, Sabine & Gaigné, Carl, 2015. "Producer Organizations and Members Performance in Hog Production," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205494, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    2. Chevassus-Lozza, Emmanuelle & Gaigné, Carl & Le Mener, Léo, 2013. "Does input trade liberalization boost downstream firms' exports? Theory and firm-level evidence," Journal of International Economics, Elsevier, pages 391-402.
    3. Key, Nigel D. & MacDonald, James M., 2008. "Local Monopsony Power in the Market for Broilers - Evidence from a Farm Survey," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6073, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Kapelko, Magdalena & Oude Lansink, Alfons & Stefanou, Spiro E., 2015. "Analyzing the impact of investment spikes on dynamic productivity growth," Omega, Elsevier, vol. 54(C), pages 116-124.
    5. Gervais, Jean-Philippe & Schroeder, Ted C., 2005. "Structural Implications of Persistent Disharmony in North American Beef and Pork Industries," North American Agrifood Market Integration Workshop II: Agrifood Regulatory and Policy Integration under Stress, May 2005, San Antonio, Texas 17998, Farm Foundation.
    6. Lopez, Rigoberto A. & Azzam, Azzeddine M. & Liron-Espana, Carmen, 2001. "Market Power and/or Efficiency: An Application to U.S. Food Processing," Research Reports 25160, University of Connecticut, Food Marketing Policy Center.
    7. Catherine J. Morrison Paul, 2003. "Cost Economies: A Driving Force for Consolidation and Concentration?," Southern Economic Journal, Southern Economic Association, vol. 70(1), pages 110-127, July.
    8. Chevassus-Lozza, Emmanuelle & Gaigné, Carl & Le Mener, Léo, 2013. "Does input trade liberalization boost downstream firms' exports? Theory and firm-level evidence," Journal of International Economics, Elsevier, pages 391-402.
    9. Crespi, John M. & Xia, Tian & Jones, Rodney D., 2008. "Competition, Bargaining Power, and the Cattle Cycle," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6263, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Jean-Philippe Gervais & Olivier Bonroy & Steve Couture, 2008. "A province-level analysis of economies of scale in Canadian food processing," Agribusiness, John Wiley & Sons, Ltd., vol. 24(4), pages 538-556.
    11. Sesmero, Juan & Schoengold, Karina, 2013. "Structural Estimation of Demand for Irrigation Water Under Strategic Behavior," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150286, Agricultural and Applied Economics Association.
    12. Goldsmith, Peter D. & Turan, Nesve A. & Gow, Hamish R., 2004. "Firms, Incentives, And The Supply Of Food Safety: A Formal Model Of Government Enforcement," 2004 Annual meeting, August 1-4, Denver, CO 20343, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    13. Pinar Celikkol & Spiro Stefanou, 2004. "Productivity Growth Patterns in U.S. Food Manufacturing: Case of Meat Products Industry," Working Papers 04-04, Center for Economic Studies, U.S. Census Bureau.
    14. Asche, Frank & Nøstbakken, Linda & Tveterås, Sigbjørn, 2009. "When will trade restrictions affect producer behavior: Oligopsony power in international trade," UiS Working Papers in Economics and Finance 2009/20, University of Stavanger.
    15. Rigoberto Lopez & Azzeddine Azzam & Carmen Lirón-España, 2002. "Market Power and/or Efficiency: A Structural Approach," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(2), pages 115-126, March.
    16. Gopinath, Munisamy & Pick, Daniel H. & Li, Yonghai, 2002. "Does Industrial Concentration Raise Productivity In Food Industries?," 2002 Annual Meeting, July 28-31, 2002, Long Beach, California 36634, Western Agricultural Economics Association.
    17. Gervais, Jean-Philippe & Bonroy, Olivier & Couture, Steve, 2006. "Economies of Scale in the Canadian Food Processing Industry," MPRA Paper 64, University Library of Munich, Germany.
    18. Guci, Ledia & Brown, Mark G., 2007. "Changes in the Structure of the Florida Processed Orange Industry and Potential Impacts on Competition," Research Papers 2007 36811, Florida Department of Citrus.

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