IDEAS home Printed from https://ideas.repec.org/a/wly/ajagec/v103y2021i4p1398-1413.html
   My bibliography  Save this article

Joint Oligopsony‐Oligopoly Power in Food Processing Industries: Application to the us Broiler Industry

Author

Listed:
  • Stephen F. Hamilton
  • David L. Sunding

Abstract

Food manufacturers and retailers mediate transactions between farm product markets and finished product markets for a large number of agricultural products. In such settings, producers at the intermediary stages of the supply chain have the potential to exercise market power jointly over agricultural producers in the upstream farm product market and over consumers in the downstream market for finished goods. In this paper, we examine settings in which food processors jointly exercise oligopsony power over farmers in the upstream market and oligopoly power over consumers in the downstream market. We demonstrate how forward contracts in the procurement market affect equilibrium prices in the downstream consumer market, allowing food processors to raise margins by leveraging oligopsony power. We apply our model to the US broiler industry and show that tournament contracts for live chicken procurement can be employed as an instrument to extend spatial oligopsony power in the upstream procurement market to soften price competition in the downstream processed goods market.

Suggested Citation

  • Stephen F. Hamilton & David L. Sunding, 2021. "Joint Oligopsony‐Oligopoly Power in Food Processing Industries: Application to the us Broiler Industry," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(4), pages 1398-1413, August.
    • Handle: RePEc:wly:ajagec:v:103:y:2021:i:4:p:1398-1413
    DOI: 10.1111/ajae.12115
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ajae.12115
    Download Restriction: no
    File URL: https://libkey.io/10.1111/ajae.12115?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. MacDonald, James M. & Key, Nigel D., 2012. "Market Power in Poultry Production Contracting? Evidence from a Farm Survey," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 44(4), pages 1-14, November.
    2. Schuler, Richard E & Hobbs, Benjamin F, 1982. "Spatial Price Duopoly under Uniform Delivered Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 175-187, September.
    3. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 383-406.
    4. Catherine A. Durham & Richard J. Sexton & Joo Ho Song, 1996. "Spatial Competition, Uniform Pricing, and Transportation Efficiency in the California Processing Tomato Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 115-125.
    5. Stephen F. Hamilton & Jura Liaukonyte & Timothy J. Richards, 2020. "Pricing Strategies of Food Retailers," Annual Review of Resource Economics, Annual Reviews, vol. 12(1), pages 87-110, October.
    6. Werden, Gregory J, 1996. "A Robust Test for Consumer Welfare Enhancing Mergers among Sellers of Differentiated Products," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 409-413, December.
    7. Richard T. Rogers & Richard J. Sexton, 1994. "Assessing the Importance of Oligopsony Power in Agricultural Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(5), pages 1143-1150.
    8. Hamilton, Stephen F. & Bontems, Philippe & Lepore, Jason, 2015. "Oligopoly intermediation, relative rivalry and market conduct," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 49-59.
    9. Richard E. Just & Wen S. Chern, 1980. "Tomatoes, Technology, and Oligopsony," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 584-602, Autumn.
    10. Theofanis Tsoulouhas & Tomislav Vukina, 1999. "Integrator Contracts with Many Agents and Bankruptcy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 61-74.
    11. Wang Zhen & Vukina Tomislav, 2019. "Sorting into Contests: Evidence from Production Contracts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(1), pages 1-15, January.
    12. MacDonald, James M., 2014. "Technology, Organization, and Financial Performance in U.S. Broiler Production," Economic Information Bulletin 262121, United States Department of Agriculture, Economic Research Service.
    13. Tomislav Vukina & Porametr Leegomonchai, 2006. "Oligopsony Power, Asset Specificity, and Hold-Up: Evidence from the Broiler Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(3), pages 589-605.
    14. Zhang, Mingxia & Sexton, Richard J., 2000. "Captive Supplies And The Cash Market Price: A Spatial Markets Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(01), pages 1-21, July.
    15. Farrell Joseph & Shapiro Carl, 2010. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-41, March.
    16. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(1), pages 1-26.
    17. Fackler, Paul L. & Goodwin, Barry K., 2001. "Spatial price analysis," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 17, pages 971-1024, Elsevier.
    18. Stahl, Dale O, II, 1988. "Bertrand Competition for Inputs and Walrasian Outcomes," American Economic Review, American Economic Association, vol. 78(1), pages 189-201, March.
    19. Vukina, Tomislav & Zheng, Xiaoyong, 2015. "The Broiler Industry: Competition and Policy Challenges," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 30(2), pages 1-6.
    20. Steven Y. Wu, 2014. "Adapting Contract Theory to Fit Contract Farming," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(5), pages 1241-1256.
    21. Theofanis Tsoulouhas & Tomislav Vukina, 2001. "Regulating Broiler Contracts: Tournaments Versus Fixed Performance Standards," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 1062-1073.
    22. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    23. Marten Graubner & Alfons Balmann & Richard J. Sexton, 2011. "Spatial Price Discrimination in Agricultural Product Procurement Markets: A Computational Economics Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(4), pages 949-967.
    24. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Daniel May & Ourania Tremma, 2023. "Effects of Sustainable Regulations at Agricultural International Market Failures: A Dynamic Approach," Sustainability, MDPI, vol. 15(3), pages 1-10, January.
    2. Schweizer, Heidi & Steinbach, Sandro & Zhuang, Xiting, 2022. "A Portrait of Firms that Trade in Meat Products," Western Economics Forum, Western Agricultural Economics Association, vol. 20(2), December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marten Graubner & Richard J. Sexton, 2023. "More competitive than you think? Pricing and location of processing firms in agricultural markets," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(3), pages 784-808, May.
    2. Hamed Khalili, 2024. "Deep Learning Pricing of Processing Firms in Agricultural Markets," Agriculture, MDPI, vol. 14(5), pages 1-14, April.
    3. Jinho Jung & Juan Sesmero & Ralph Siebert, 2020. "Spatial Differentiation and Market Power in Input Procurement: Evidence from a Structural Model of the Corn Market," CESifo Working Paper Series 8088, CESifo.
    4. Hueth, Brent & Taylor, Christopher W., 2013. "Spatial Competition in Agricultural Markets: A Discrete-Choice Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150506, Agricultural and Applied Economics Association.
    5. Hamilton, Stephen F. & Bontems, Philippe & Lepore, Jason, 2015. "Oligopoly intermediation, relative rivalry and market conduct," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 49-59.
    6. Marten Graubner, 2018. "Lost in space? The effect of direct payments on land rental prices," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 45(2), pages 143-171.
    7. Jinho Jung & Juan Sesmero & Ralph Siebert, 2022. "A structural estimation of spatial differentiation and market power in input procurement," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(2), pages 613-644, March.
    8. Bagwell, Kyle & Wolinsky, Asher, 2002. "Game theory and industrial organization," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 49, pages 1851-1895, Elsevier.
    9. Simon Loertscher, 2008. "Market Making Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 263-289, June.
    10. Rachael Goodhue & Leo Simon, 2016. "Agricultural contracts, adverse selection, and multiple inputs," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 4(1), pages 1-33, December.
    11. Bagwell, Kyle & Staiger, Robert W., 1994. "The sensitivity of strategic and corrective R&D policy in oligopolistic industries," Journal of International Economics, Elsevier, vol. 36(1-2), pages 133-150, February.
    12. Kazuharu Kiyono & Fang Wei, 2008. "The role of location choice in strategic export promotion policy: capital liberalization incentives of exporting countries," Journal of Economics, Springer, vol. 95(1), pages 55-74, October.
    13. Yasushi Kawabata, 2010. "Strategic Export Policy In Vertically Related Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 62(2), pages 109-131, April.
    14. Elizabeth Schroeder & Victor Tremblay, 2015. "A Reappraisal of Strategic Trade Policy," Journal of Industry, Competition and Trade, Springer, vol. 15(4), pages 435-442, December.
    15. Jiandong Ju & Scott C. Linn & Zhen Zhu, 2010. "Middlemen and Oligopolistic Market Makers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(1), pages 1-23, March.
    16. Ishikawa, Jota & Spencer, Barbara J., 1999. "Rent-shifting export subsidies with an imported intermediate product," Journal of International Economics, Elsevier, vol. 48(2), pages 199-232, August.
    17. Dermot Leahy & J. Peter Neary, 2013. "Oligopoly and Trade," Palgrave Macmillan Books, in: Daniel Bernhofen & Rod Falvey & David Greenaway & Udo Kreickemeier (ed.), Palgrave Handbook of International Trade, chapter 7, pages 197-235, Palgrave Macmillan.
    18. Naoto Jinji, 2012. "Factor market monopsony and international duopoly," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(2), pages 271-286, February.
    19. Dermot Leahy & J. Peter Neary, 2021. "When the threat is stronger than the execution: trade and welfare under oligopoly," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 471-495, September.
    20. Keisuke Hattori, 2010. "Strategic Voting for Noncooperative Environmental Policies in Open Economies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 46(4), pages 459-474, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ajagec:v:103:y:2021:i:4:p:1398-1413. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1467-8276 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.