Markdown Pricing and Cattle Supply in the Beef Packing Industry

Kyle Stiegert (), Azzeddine Azzam and B Brorsen

American Journal of Agricultural Economics, 1993, vol. 75, issue 3, 549-558

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.

Date: 1993
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