Measuring market power in the United States beef and pork industries
The aim of my dissertation is to investigate the competitiveness of the beef and pork industries in the US. The level of concentration in the US meatpacking industry is considerably high and the increase in concentration in the packing industry since late 1970s has also occurred quite rapidly. The industry has also observed an increase in captive supply and vertical integration in the input market of this industry in the last fifteen years. These changes naturally trigger concern regarding possible assertion of market power at both wholesale meat and live animal levels of the industries by the meatpacking firms. Two separate studies were conducted with the aim to investigate the level of market power in the meat and live animal markets exerted by the meatpackers in the US. Both the studies followed New Empirical Industrial Organization (NEIO) modeling approach. The first study used time series estimation tools and applied a number of cointegration methodologies to estimate measures of market power in the meat and live animal markets. Part of the aim in this study was to avoid more complex structural estimation and instead conduct time series estimation to estimate market power. In the second study, the theoretical model was extended to allow for the estimation of spatially distinct conjectural elasticities in the live animal markets along with national level imperfect conduct in the meat markets. A spatial NEIO model was developed for empirical analysis at the regional level in the U.S. beef and pork industries. The time series estimation results, following Engel-Granger OLS (EGOLS), Fully Modified OLS (FMOLS) and Johansen Maximum Likelihood estimation methods, suggest that market power is exerted in both the output and input market by the meat packing industry. However, output market mark-ups are higher than the input markets. According to the regional study, no evidence of market power was found in any of the regional live animal markets in the US. However, in the wholesale meat market beef packers are estimated to exert about ten percent mark-up pricing; while pork packers assert a much higher level of about 43 percent mark-up pricing in the wholesale pork market.
Foster, Purdue University.
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