Analyses of competition in the food industries
Abstract
Two analyses are made of a controversial aspect of the U.S. food system--the nature of competition in the food industries. The first analysis is based on two key assumptions about firms in these industries; namely, that they produce with constant returns to scale and that their output shares are symmetric. Although restrictive, these assumptions are the usual ones that are implicitly invoked in order to render conceptual models applicable to the types of aggregate data that are typically available. Using annual series for the period 1955-83, no evidence is found of departures from competition in the output markets of the food industries of eight commodity groups: (a) beef and veal, (b) pork, (c) poultry, (d) eggs, (e) dairy, (f) processed fruits and vegetables, (g) fresh fruits, and (h) fresh vegetables. In order to circumvent the constant-returns and symmetry assumptions, a second analysis is performed. This alternative approach is based on empirically observable distinctions in an equilibrium model derived under alternative hypotheses about conduct in the farm-commodity and retail-product markets. To derive this model, the optimizing behaviors of firms with market power are characterized through a generalization of the variable profit function. The derivative properties of this function facilitate a convenient representation of the marketing-system equilibrium conditional on four respective hypotheses: (a) perfect competition in both markets, (b) imperfect competition in both markets, (c) oligopoly in the retail-product market, but perfect competition in the farm commodity market, and (d) oligopsony in the farm commodity market, but perfect competition in the retail-product market. The approach is applied to annual data for the period 1955-79 for a subset of the eight commodity groups: (a) beef and veal, (b) pork, (c) poultry, (d) eggs, and (e) dairy. The factor constraining this coverage is the availability of appropriate input data at the farm level. For each of the five commodity groups, the results provide strongest support for the hypothesis of perfect competition in the retail-product market and oligopsony in the farm-commodity market. The conclusion is that there may be legitimate grounds for second-best interventions in these farm-commodity markets.
Degree
Ph.D.
Advisors
Hertel, Purdue University.
Subject Area
Agricultural economics|Marketing
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