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Markdown Pricing and Cattle Supply in the Beef Packing Industry

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  • Kyle W. Stiegert
  • Azzeddine Azzam
  • B. Wade Brorsen

Abstract

We determine the effect of anticipated and unanticipated cattle supply on the departure of fed cattle price from cattle's marginal value product. Results indicate fed cattle were priced significantly below their marginal value during 31 of the 59 quarters between 1972II and 1986IV. When unanticipated supply shocks are small, markdown behavior is consistent with the hypothesis that packers follow an average processing cost (APC) pricing rule. One implication of our results is that reducing industry concentration is not likely to lead to changes in cattle prices predicted by SCP-based studies of the industry.

Suggested Citation

  • Kyle W. Stiegert & Azzeddine Azzam & B. Wade Brorsen, 1993. "Markdown Pricing and Cattle Supply in the Beef Packing Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(3), pages 549-558.
    • Handle: RePEc:oup:ajagec:v:75:y:1993:i:3:p:549-558.
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    Cited by:

    1. Rakotoarisoa, Manitra A. & Henneberry, Shida Rastegari & Shapouri, Shahla & Trueblood, Michael A., 2003. "The Export Market For Differentiated Processed Agricultural Products: The Role Of Factor Prices And Fixed Costs," 2003 Annual meeting, July 27-30, Montreal, Canada 21964, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Muth, Mary K. & Wohlgenant, Michael K., 1998. "A Model Of Imperfect Competition Using Marginal Input And Output Prices: Application To The Beef Packing Industry," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20853, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Weliwita, Ananda & Azzam, Azzeddine M., 1996. "Identifying Implicit Collusion Under Declining Output Demand," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 21(2), pages 1-12, December.
    4. Cai, Xiaowei & Stiegert, Kyle W. & Koontz, Stephen R., 2009. "Oligopsony Power: Evidence from the U.S. Beef Packing Industry," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49364, Agricultural and Applied Economics Association.
    5. Azzam, Azzeddine M., 1998. "Competition in the US meatpacking industry: is it history?," Agricultural Economics, Blackwell, vol. 18(2), pages 107-126, March.
    6. Ronchi, Loraine, 2006. "Fairtrade and market failures in agricultural commodity markets," Policy Research Working Paper Series 4011, The World Bank.
    7. Key, Nigel D. & MacDonald, James M., 2008. "Local Monopsony Power in the Market for Broilers - Evidence from a Farm Survey," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6073, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Jung Min Lee & Chanjin Chung, 2024. "Estimating Market Power Exertion in the U.S. Beef Packing Industry: An Illustration of Data Aggregation Bias Using Simulated Data," Sustainability, MDPI, vol. 16(9), pages 1-19, April.
    9. Love, H. Alan & Capps, Oral, Jr. & Williams, Gary W., 2010. "Concentration In Beef Packing and Slaughter Cattle Pricing," Journal of Food Distribution Research, Food Distribution Research Society, vol. 41(3), pages 1-17, November.
    10. Inbae Ji & Chanjin Chung & Jungmin Lee, 2017. "Measuring Oligopsony Power in the U.S. Cattle Procurement Market: Packer Concentration, Cattle Cycle, and Seasonality," Agribusiness, John Wiley & Sons, Ltd., vol. 33(1), pages 16-29, January.
    11. Ward, Clement E., 2002. "A Review of Causes for and Consequences of Economic Concentration in the U.S. Meatpacking Industry," CAFRI: Current Agriculture, Food and Resource Issues, Canadian Agricultural Economics Society, issue 3, pages 1-28, January.
    12. Shalynn Sumrow & Darren Hudson & Oscar Sarasty & Carlos Carpio & Christy Bratcher, 2024. "Consumer preferences for worker and supply chain risk mitigation in the beef supply chain in response to COVID‐19 pandemic," Agribusiness, John Wiley & Sons, Ltd., vol. 40(1), pages 299-315, January.
    13. Guci, Ledia & Brown, Mark G., 2007. "Changes in the Structure of the Florida Processed Orange Industry and Potential Impacts on Competition," Research papers 36811, Florida Department of Citrus.
    14. Crespi, John M. & Xia, Tian & Jones, Rodney D., 2008. "Competition, Bargaining Power, and the Cattle Cycle," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6263, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    15. Dimitrios Panagiotou & Athanassios Stavrakoudis, 2017. "A Stochastic Production Frontier Estimator of the Degree of Oligopsony Power in the U.S. Cattle Industry," Journal of Industry, Competition and Trade, Springer, vol. 17(1), pages 121-133, March.
    16. Nelson, Robert G. & Turner, Steven C., 1995. "Experimental Examination Of A Thin Market: Price Behavior In A Declining Terminal Market Revisited," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 27(1), pages 1-12, July.
    17. Gallet, Craig A., 1997. "Public policy and market power in the rayon industry," Journal of Economics and Business, Elsevier, vol. 49(4), pages 369-377.
    18. Xiaowei Cai & Kyle Stiegert & Stephen Koontz, 2011. "Regime switching and oligopsony power: the case of U.S. beef processing," Agricultural Economics, International Association of Agricultural Economists, vol. 42(1), pages 99-109, January.
    19. Rao Fu & Chenguang Li & Liming Wang, 2021. "Market Power in the Irish Beef Processing Industry," Sustainability, MDPI, vol. 13(11), pages 1-18, June.
    20. Love, H. Alan & Burton, Diana M., 1999. "A Strategic Rationale For Captive Supplies," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(1), pages 1-18, July.
    21. Manitra A. Rakotoarisoa, 2023. "Fixed costs, market power and revenue shares of the asymmetric firms," SN Business & Economics, Springer, vol. 3(3), pages 1-34, March.
    22. Richards, Timothy J. & Patterson, Paul M. & van Ispelen, Pieter, 1998. "Modeling Fresh Tomato Marketing Margins: Econometrics And Neural Networks," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), pages 1-14, October.
    23. Holloway, Garth J. & Hertel, Thomas W. & Han, Frank M., 1997. "Does Market Power Matter?," Working Papers 225884, University of California, Davis, Department of Agricultural and Resource Economics.
    24. Panagiotou, Dimitrios, 2005. "Cointegration, Error Correction, And The Measurement Of Oligopsony Conduct In The U.S. Cattle Market," 2005 Annual meeting, July 24-27, Providence, RI 19201, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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