Export competition in the United States broiler meat and wheat flour sectors: An industrial organization approach

Paul Malcolm Patterson, Purdue University

Abstract

Various U.S. government programs have been used to promote value added agricultural exports. New developments in trade theory have suggested that the effectiveness of export promotion programs may be different in imperfectly competitive markets, as may be the case for these products. Entry barriers in the form of high fixed export transaction costs are believed to limit exports of these products to a small number of firms. Thus, this study sought to (1) verify the impact of these costs on market entry decisions; and (2) to determine whether imperfect competition is a relevant factor in value added agricultural export markets. The U.S. broiler meat and wheat flour sectors served as case studies. Evidence on domestic and export market structure suggested that these industries are potentially noncompetitive. Also, subsidies under the Export Enhancement Program and other programs have been used to promote exports of each. An export market entry decision model was developed. Empirical analysis suggested that fixed costs are important in explaining high export seller concentration. It was also found that subsidies under the EEP did not directly affect market structure, as it did not encourage new firm entry. The EEP regulations limited participation in the program to a small number of firms. The competitiveness of these sectors was examined using three econometric models: (1) a traditional structure-conduct-performance model, (2) a conjectural variations model, and (3) a New Empirical Industrial Organization model. All models suggested only a minimal role for market power in the export market, despite the high levels of exporter seller concentration. These findings suggest that government programs which help to lower fixed export transactions costs may encourage new entrants and increase exports. However, export price subsidy programs are not likely to encourage entry, particularly if administered in a manner like the EEP. Also, imperfect competition is not a relevant factor for analyzing export promotion policies for these products. Thus, export subsidies are likely to be welfare reducing, as there are not additional rents to be captured from these export markets.

Degree

Ph.D.

Advisors

Abbott, Purdue University.

Subject Area

Agricultural economics|Marketing|Business costs

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