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

Stephen F. Hamilton and David L. Sunding

American Journal of Agricultural Economics, 2021, vol. 103, issue 4, 1398-1413

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.

Date: 2021
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Handle: RePEc:wly:ajagec:v:103:y:2021:i:4:p:1398-1413