Current Agriculture, Food & Resource Issues
C. E. Ward
Concentration and Margins
Marketing margins have been a topic of research interest in the agricultural economics
profession for a long time. One point of interest is whether or not market structure
characteristics affect marketing margins, i.e., farm-wholesale, wholesale-retail, or farm-retail.
The basis for these studies is the presumed linkage between market structure and economic
performance. Structural characteristics may allow firms to behave in a manner that leads to
lower input prices, higher output prices, or a combination of both. In any of those cases,
marketing margins would widen (ceteris paribus).
Schroeter and Azzam (1990) extended the conjectural variation approach from Schroeter
to meatpacking firms processing more than one livestock species, i.e., beef and pork.
Specifically, they estimated the degree of monopoly/monopsony power in farm-retail price
spreads. They estimated their model with quarterly data for the period 1976 to 86. They
found evidence of monopoly/monopsony conduct and estimated that nearly half of farm-
retail price spreads for beef and pork (55 percent and 37 percent, respectively) could be
attributed to monopoly/monopsony distortions. It should be noted that Schroeter and Azzam
assumed fully integrated meatpacking firms and ignored all vertical relationships in the
industry. They also noted data limitations in estimating the model.
Schroeter and Azzam (1991) developed a conceptual framework to decompose marketing
margins into components, including oligopsony and oligopoly price distortions. They
empirically applied the model to the porkpacking industry with weekly data for 1972-88.
Note that during this period four-firm concentration ranged from 31.6 in 1972 to 33.5 in
1988 (Grain Inspection, Packers and Stockyards Administration, 2000). They found that
oligopsony and oligopoly price distortions were not significant for the period studied, but
also were not zero. In testing for differences in sub-periods (i.e., 1980s compared with
1970s), Schroeter and Azzam found evidence for less concern about oligopsony and oligopoly
price distortions in the latter period than the earlier period, despite increased regional
concentration in hog slaughter.
Brester and Musick (1995) used monthly data for 1980-92 to study the effect
concentration in lambpacking had on farm-wholesale and farm-retail marketing margins.
Results showed that increases in lambpacking concentration had small, positive effects on
marketing margins, both farm-wholesale and farm-retail. However, Brester and Musick did
not conclude that lambpacking firms used market power to lower slaughter lamb prices or
raise retail prices, since the widening margins may have been associated with increased costs
of processing as the industry converted from carcass to boxed-lamb processing and
distribution.
One objective of an Economic Research Service study was to estimate the effect
concentration has had on farm-wholesale and wholesale-retail marketing margins in the beef
industry (Matthews et al., 1999). They estimated an asymmetric price adjustment model to
determine whether or not price spreads change at the same rate when prices are decreasing as
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