Integrating the Structural Auction Approach and Traditional Measures of Market Power

followed by an empirical procedure to test the theory. The data only allow for an indirect
test rather than a direct test using equation (2.13). We also estimate markups using the
both traditional NEIO model and a structural auction model, and compare these markups
with the markups estimated directly from the data.

Data

The data used in this study were generated from a five-hour evening workshop using the
Fed Cattle Market Simulator (FCMS) (Hogan et al., 2003; Ward, 2005) in February,
2006. The FCMS simulates a market for fed cattle that mimics the real-world cattle
procurement market. Some of the participants in the FCMS play the role of feedlot
managers while others the role of meatpackers

The participants in our experiments were primarily undergraduate students
majoring in agricultural economics. The students were organized in four packer teams
(each with four members) and eight feedlot manager teams (each with 3 or 4 members).
In addition, one “observer” was allocated to each feedlot with the exclusive task of
recording all bids, both winning and losing bids, submitted by packers. The observers
recorded bids on special paper cards, and did not participate in cattle trades. The data
recorded at each feedlot consisted of price and quality of cattle sold, and identity of
feedlots and buyers.

During the experimental game, packer and feedlot teams are instructed to
maximize profits. Both packers and feedlot managers were instructed to buy and sell
cattle for profit. Competition among teams was stimulated by paying a $40 participation
fee per person with the opportunity to win more or lose part of the fee based on financial
performance during the game.

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