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Current Agriculture, Food & Resource Issues

C. E. Ward


(1988), that meatpacking firms use average-cost pricing and may be profit satisficers.
Driscoll, Kambhampaty, and Purcell found very little evidence of oligopolistic or
oligopsonistic behavior when profit maximization was assumed, consistent with small price
distortions found in previous research. They argued that use of conjectural variations is
inappropriate when short-term, static profit maximization is assumed. However, they did not
rule out profit-maximizing behavior over several periods.

According to Muth and Wohlgenant (1999), one assumption commonly, and arguably
incorrectly, made in conjectural variation studies is that of fixed-proportions technology.
They developed a model relaxing this assumption in favor of variable proportions or
substitutability among the non-specialized inputs. They contended their approach requires
less data in the empirical estimation process and applied the model to annual data for 1967-
93. They found negligible oligopsony price distortion, contrary to previous models using
fixed proportions.

Koontz and Garcia (1997) extended the Koontz, Garcia, and Hudson (1993) non-
cooperative game to measure the competitiveness of beefpacking firms across regional fed
cattle markets. Multi-plant firms encounter each other in multiple markets. The Koontz and
Garcia model enables accounting for firm behavior in all relevant markets. They used daily
data from eight regional fed cattle markets for the periods 1980-82 and 1984-86. Multiple-
market oligopsony was found across geographic fed cattle markets and evidence indicated
coordinated behavior across markets. The oligopsony finding was consistent with previous
research on single-market oligopsony. Also consistent was the finding that the extent of
oligopsony was small and that the effect was greater in the earlier period than the latter
period, despite regional concentration being higher in the latter period. Overall, Koontz and
Garcia concluded that oligopsony behavior in fed cattle procurement is non-constant over
time and space.

While oligopsony/oligopoly price distortions have been found in some studies, Schroeter,
Azzam, and Zhang (2000) explored the oligopoly question in relation to the retail market.
Specifically, they developed a model to test for bilateral oligopoly of meatpacking and retail
firms, but allowed for oligopoly behavior by packers and oligopsony behavior by retailers.
Using monthly data for 1990-94, they concluded the data best fit a model of oligopsony
behavior by retailers. They found that meatpackers were price-takers with little or no
evidence of oligopoly behavior.

Paul (2001) estimated oligopoly and oligopsony power with monthly, plant-level cost
and revenue data for the 43 largest beefpacking plants for a one-year period in 1992-93. She
also estimated cost functions and found results both for cost economies and market power to
be very robust. Her findings confirmed significant economies of size, as discussed above. In
addition, she found little evidence of price-depressing, oligopsonistic effects for fed cattle.
Her findings were consistent with the previous research on trade-offs between cost efficiency
gains and oligopsony losses (Azzam and Schroeter, 1995).

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