Effects of Horizontal Concentration in the Cattle Procurement Market of the U.s. Beef Packing Industry: Price Vs Quality Competition

Abstract

The motivation of this study was to conduct a market power - cost efficiency effect analysis for price competition, and compare the effects with quantity competition and check whether the results from previous studies on quantity competition that market power effect is superseded by cost efficiency effect is reversed under alternative assumptions of market structure. We compare effects of horizontal mergers in the U.S. beef packing industry on input as well as output price under quantity and price competitions. This model was applied to weekly data for U.S. beef packing industry and we empirically investigated the welfare loss to individual participants such as farmers, consumers and processors for both types of model. The results suggest that consolidations in the beef industry are not always efficiency driven. Infact, in most cases it has led to welfare loss of both consumers and farmers. Atleast, for the input price, generally there has been no spillover effect of profit earned by processors on farmers due to increased concentration. However, price competition led to lower loss in welfare as compared to quantity competition.