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Cost Economies and Market Power: The Case of the U.S Meat Packing Industry

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  • Morrison Paul, Catherine J.

Abstract

Increasing size of establishments and resulting concentration in US 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 indexes 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 US meat packing industry, where 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.

Suggested Citation

  • Morrison Paul, Catherine J., 2000. "Cost Economies and Market Power: The Case of the U.S Meat Packing Industry," Working Papers 190897, University of California, Davis, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucdavw:190897
    DOI: 10.22004/ag.econ.190897
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    References listed on IDEAS

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    1. 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, vol. 70(2), pages 275-287, May.
    2. 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.
    3. Catherine J. Morrison & Donald Siegel, 1997. "External Capital Factors And Increasing Returns In U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 647-654, November.
    4. 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.
    5. Gilbert, Richard J, 1989. "The Role of Potential Competition in Industrial Organization," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 107-127, Summer.
    6. Berndt, Ernst R & Morrison, Catherine J, 1981. "Capacity Utilization Measures: Underlying Economic Theory and an Alternative Approach," American Economic Review, American Economic Association, vol. 71(2), pages 48-52, May.
    7. Azzam, Azzeddine M. & Schroeter, John R., 1997. "Concentration in Beef Packing: Do Gains Outweigh Losses?," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 12(01), pages 1-3.
    8. A. P. Lerner, 1934. "The Concept of Monopoly and the Measurement of Monopoly Power," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 1(3), pages 157-175.
    9. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
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