The Tradeoff Between Oligopsony Power and Cost Efficiency in Horizontal Consolidation: An Example from Beef Packing

Azzeddine Azzam and John Schroeter

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: In this paper we model the tradeoff between regional oligopsony power and cost efficiency resulting from consolidation in a food processing industry. The model can be used to calculate the cost reductions necessary to offset the anticompetitive effects of market power and to compare them to actual cost savings achieved through plant scale or multiplant operating economies. For an application, we choose the beef packing industry. For this case, we find that the estimated cost savings necessary to neutralize the anticompetitive effects of consolidation in beef packing are about half the actual cost savings from scale economies.

Date: 1995-11-01
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Published in American Journal of Agricultural Economics, November 1995, vol. 77 no. 4, pp. 825-836

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Journal Article: The Tradeoff between Oligopsony Power and Cost Efficiency in Horizontal Consolidation: An Example from Beef Packing (1995)
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