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Current Agriculture, Food & Resource Issues

C. E. Ward


period. Higher earnings rates by smaller meatpackers seem inconsistent with the argument
that the largest firms are the most efficient or that they have exercised oligopoly or oligopsony
power. At least a portion of the higher returns to smaller firms may be due to their greater
involvement in higher-value products for niche markets and higher returns for differentiated
products that fit these markets.

Market and Firm Behavior and Performance Evidence

Research that addresses market behavior, either for individual firms or groups of firms
(i.e., leading firms or the market as a whole), is linked directly or indirectly to market
performance. Similarly, studies that attempt to measure market performance are implicitly or
explicitly tied to market behavior. Thus, here a number of studies are reviewed that pertain to
both behavior and performance. Studies are grouped into four interrelated, indistinct
categories. Because an individual study frequently crosses category boundaries, one could
argue with my choice of discussing them in a given section. Generally, research is discussed in
chronological order based on the publication date.

Several studies, especially earlier ones, measure price impacts indirectly from market
structure characteristics, without knowing anything about specific conduct or behavior.
Examples include using such structural characteristics as number of buyers, bidders,
procurement method, and buyer concentration to estimate effects on prices or margins. This
approach tends to be associated with Bain’s structure-conduct-performance paradigm. In
recent years, an alternative approach based on estimating firm conjectures (the conjectural
variation approach) has increased in popularity. These studies, which offer conjectures
regarding buyer or seller behavior that leads directly to performance measures or outcomes,
are sometimes categorized as “new empirical industrial organization” or “new industrial
organization” research. Many economists consider the conjectural variation approach superior
to the previous, indirect method of measuring price impacts from structural and behavioral
changes. However, other economists note shortcomings of this approach and question its
presumed superiority. (These arguments are discussed further below).

Price and Market Structure Characteristics

Several studies have examined the relationship between prices paid for livestock by
meatpackers and various structural characteristics of the marketplace for the respective
livestock species. These studies generally adhere to the underlying relationship in traditional
industrial organization economics, where structural characteristics are causally related to
performance outcomes (Bain, 1968). All research reviewed in this section estimates price-
dependent econometric models, which typically hold constant many factors that influence
prices, such as supply, demand, quality, quantity, time and place variables. Thus, the focus of
the models and of this review is on the relationship between price and variables related to
market structure, e.g., number of bids, number of bidders or buyers (i.e., plants and/or



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