Measuring Oligopsony Power in the U.S. Cattle Procurement Market: Packer Concentration, Cattle Cycle, and Seasonality

Inbae Ji, Chanjin Chung and Jungmin Lee

Agribusiness, 2017, vol. 33, issue 1, 16-29

Abstract: ABSTRACT This study estimates the oligopsony power in the U.S. cattle procurement market in consideration of market structure of beef‐packing industry, cattle supply, and seasonality. Our conceptual model represents a price‐setting monopsonist competing with multiple monopsonists, and the corresponding empirical model includes a time‐varying parameter framework so that it can trace the change in packers’ imperfect competition behavior in the cattle procurement market over time. The empirical model is applied to three cattle procurement markets in the United States: national, Nebraska, and Texas/Oklahoma/New Mexico. Empirical results show the existence of oligopsony market power in the U.S. cattle procurement market. The oligopsony market power is considerably influenced by cattle cycle and seasonality, which indicates that packers tend to increase their margin during the excessive cattle supply period while maintaining lower margin during the short cattle supply period. [EconLit citations: D43, L11, L13, Q13].

Date: 2017
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