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Industry Organization and Output Size Distribution of Cotton Gins in the U.S

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  • Mutuc, Maria Erlinda M.
  • Hudson, Darren

Abstract

With cotton output declining by 46 percent from 2005-2008 (from 23.89 M bales in 2005 to 12.8 M bales in 2008), gins are processing less cotton. This paper examines how output size distribution of cotton gins in the U.S. has evolved and the extent to which the developments in the U.S. ethanol industry, specifically the passage of the Energy Policy Act in 2005 (and its subsequent revisions), have influenced this structural process. Markov transitional probability matrices (TPMs) are estimated for two periods: 1994-2004 and 2005-2008 to determine changes in output size distribution of gins. TPMs indicate that relative to the pre-2005 period, gins had a greater propensity to process lower outputs after 2005. It is purported that in industries constrained by declining demand, bigger firms with excess capacity operate at higher costs than smaller firms that operate closer to their minimum efficient scale.

Suggested Citation

  • Mutuc, Maria Erlinda M. & Hudson, Darren, 2010. "Industry Organization and Output Size Distribution of Cotton Gins in the U.S," 2010 Annual Meeting, February 6-9, 2010, Orlando, Florida 56424, Southern Agricultural Economics Association.
  • Handle: RePEc:ags:saea10:56424
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    Keywords

    cotton; cotton gins; transitional probabilities; Markov; minimum efficient scale; Agricultural and Food Policy; Crop Production/Industries; Industrial Organization; Q10; Q12; L11;

    JEL classification:

    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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