Social and Behavioral Sciences Commons^™

The Tradeoff Between Oligopsony Power And Cost Efficiency In Horizontal Consolidation: An Example From Beef Packing, John Schroeter, Azzeddine Azzam

Azzeddine Azzam

In this paper, the authors model the trade-off 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, the authors choose the beef packing industry. For this case, they 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.