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Competition, Bargaining Power, and the Cattle Cycle

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  • Crespi, John M.
  • Xia, Tian
  • Jones, Rodney D.

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.

Suggested Citation

  • 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).
  • Handle: RePEc:ags:aaea08:6263
    DOI: 10.22004/ag.econ.6263
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    File URL: http://ageconsearch.umn.edu/record/6263/files/469327.pdf
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    References listed on IDEAS

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    1. John M. Crespi & Richard J. Sexton, 2004. "Bidding for Cattle in the Texas Panhandle," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 660-674.
    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 158-162, February.
    3. Schroeter, John R. & Azzam, Azzeddine M., 1990. "Measuring Market Power in Multi-Product Oligopolies: The U.S. Meat Industry," Staff General Research Papers Archive 11112, Iowa State University, Department of Economics.
    4. Rosen, Sherwin & Murphy, Kevin M & Scheinkman, Jose A, 1994. "Cattle Cycles," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 468-492, June.
    5. A. M. Azzam, 1992. "Testing The Competitiveness Of Food Price Spreads," Journal of Agricultural Economics, Wiley Blackwell, vol. 43(2), pages 248-256, May.
    6. Richard J. Sexton & Mingxia Zhang, 1996. "A Model of Price Determination for Fresh Produce with Application to California Iceberg Lettuce," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 924-934.
    7. Kyle W. Stiegert & Azzeddine Azzam & B. Wade Brorsen, 1993. "Markdown Pricing and Cattle Supply in the Beef Packing Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(3), pages 549-558.
    8. 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.
    9. Harl, Neil E. & McEowen, Roger A. & Carstensen, Peter C., 1991. "The 2002 Senate Farm Bill: The Ban on Packer Ownership of Livestock," Staff General Research Papers Archive 10093, Iowa State University, Department of Economics.
    10. Azzam, Azzeddine M, 1997. "Measuring Market Power and Cost-Efficiency Effects of Industrial Concentration," Journal of Industrial Economics, Wiley Blackwell, vol. 45(4), pages 377-386, December.
    11. 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;The Industrial Organization Society, vol. 27(3), pages 253-278, November.
    12. Roland Maude-Griffin & Roger Feldman & Douglas Wholey, 2004. "Nash bargaining model of HMO premiums," Applied Economics, Taylor & Francis Journals, vol. 36(12), pages 1329-1336.
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    Keywords

    Livestock Production/Industries;

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