Current Agriculture, Food & Resource Issues
C. E. Ward
firms), institutional considerations such as marketing/procurement methods, and buyer
concentration.
Ward (1981) used transaction data from 1979 to empirically estimate the process packers
described in pricing fed cattle. He found a positive, significant relationship between prices
paid and either number of bids received or number of buyers bidding on each sale lot. Using
the same data, he found that prices differed significantly between the smallest buyer and at
least one larger buyer in half of the local markets he defined (Ward, 1982). Overall, larger
buyers did not pay significantly lower prices than smaller rivals.
Annual data for several states in two years (1972 and 1977) were used to relate prices
paid by packers and market structure variables, especially state-level concentration
(Menkhaus, St. Clair, and Ahmaddaud, 1981). Results were consistent regarding the
concentration variable. For both years, increased concentration was associated with
significantly lower prices. The researchers concluded that the concern over concentration in
beefpacking is warranted. It might be noted that concentration in steer and heifer slaughter
for the United States during the two years they considered was 26 percent in 1972 and 27
percent in 1977.
Transaction data from 1979-82 were used to assess the importance and impact of
competition on slaughter lamb prices (Ward, 1984). In alternative model specifications,
prices paid varied among packers, and the largest buyer (based on market share of purchases)
paid significantly lower prices than the smallest buyer. Prices increased significantly as the
number of bidders increased, and price differences for the teleauction increased in its favor
relative to a larger reference market as the number of bidders increased.
Another way to view potential competition is to consider the number of plants in a
market area. Hayenga, Deiter, and Montoya (1986) examined the price impacts from closing
and opening hog slaughtering plants in the Corn Belt region. Six plant closings during 1978-
81 were studied, along with the re-openings of two of the plants in 1983. Using weekly data,
transitory price declines lasting two weeks or more were found for four of the six plant
closings and one of the two plant openings. Hayenga, Deiter, and Montoya concluded that
concerns about adverse price impacts from plant closings may not be warranted. Adverse
effects, when found, were temporary in nature until the market adjusted to the plant closing.
The development of a pilot electronic market for slaughter hogs in 1980 enabled the
capture of transaction data, which allowed examination of the relationship between prices
paid and increased buyer competition (Rhodus, Baldwin and Henderson, 1989). The
researchers compared prices observed in HAMS (Hog Accelerated Marketing System) with
reference markets for slaughter hogs. Prices received by producers marketing hogs through
HAMS were higher relative to traditional hog markets during the 1979-81 period. The
authors concluded that the electronic market enhanced prices to producers due to increased
buyer competition.