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Vertical integration to avoid monopsonistic exploitation

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  • Brianna L. Alderman
  • Roger D. Blair

Abstract

For decades, the suppliers of fed cattle have complained about monopsonistic exploitation by the dominant meatpackers. Recently, a group of ranchers and feedlot operators joined forces to build their own meatpacking plant in an effort to avoid such exploitation. In this context, we show that forward vertical integration by the suppliers of fed cattle will increase their profits while increasing output and lowering prices for consumers. In addition, we show that vertical integration improves both consumer welfare and social welfare. We also examine the use of a joint sales agency, which is an economically equivalent alternative to vertical integration.

Suggested Citation

  • Brianna L. Alderman & Roger D. Blair, 2023. "Vertical integration to avoid monopsonistic exploitation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 1824-1832, June.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:4:p:1824-1832
    DOI: 10.1002/mde.3791
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    References listed on IDEAS

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    3. Blair, Roger D & Kaserman, David L, 1987. "A Note on Bilateral Monopoly and Formula Price Contracts," American Economic Review, American Economic Association, vol. 77(3), pages 460-463, June.
    4. Davide Del Prete & Armando Rungi, 2020. "Backward and Forward Integration Along Global Value Chains," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(2), pages 263-283, September.
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