Azzeddine M. Azzam

Measuring market power and cost-efficiency effects of industrial concentration

In this paper, the author shows how E. Appelbaums framework for testing price-taking behavior in a single industry can be formally extended to consider concentration explicitly. In so doing, he separates the market power effect of concentration from its cost-efficiency effect. Data from the U.S. beef-packing industry are used to illustrate an empirical application of the model. The findings support oligopsonistic market power and slaughter-cost efficiency in the industry. However, the cost-efficiency effect outweighs the market-power effect. Copyright 1997 by Blackwell Publishing Ltd

Marketing Margins, Market Power, and Price Uncertainty

This paper provides a conceptual and empirical framework for analyzing marketing margins in a noncompetitive food-processing industry facing output price uncertainty. The framework allows the decomposition of observed margins into components reflecting the marginal cost of the processing industry, oligopoly/oligopsony price distortions, and an output price risk component. The empirical procedure is applied to a time series of spreads between wholesale pork prices and farm prices of market hogs. The principal finding is that, while farm/wholesale margins are more consistent with competitive performance now than they were fifteen years ago, the output price risk component persisted throughout the sample period.

Asymmetry and Rigidity in Farm-Retail Price Transmission

This article demonstrates how retail-price transmission asymmetry can arise from intertemporal optimizing behavior among spatially competitive retailers facing concave spatial demand and shows that vigorous competition among retailers may not necessarily result in the larger retail-price declines farmers expect during periods of declining farm prices. It also shows that, when this particular class of retailers incurs repricing costs, retail prices can be rigid over a range of upward and downward movements in the farm price. This suggests that the rigidity of retail prices, during periods of declining farm prices, could be due to repricing costs. It also suggests that the appropriate econometric model of price-transmission is the model of friction, where Tobit analysis is the proper method of estimation rather than nonreversible functions. Copyright 1999, Oxford University Press.

Market Power and/or Efficiency: A Structural Approach

This article separates oligopoly-power and cost-efficiency effects ofchanges in industrial concentration and assesses their impact on output prices in 32 food-processing industries. Empirical results indicate that although concentration inducescost efficiency in one-third of the industries, oligopoly-power effects either dominate cost efficiencyor reinforce inefficiency, resulting in higher output prices in most industries. The articlealso provides fresh econometric estimates of oligopoly power and economies of size for the industriesin question.

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

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.

Captive Supplies, Market Conduct, and the Open-Market Price

In this paper I examine the anatomy of the price captive-supplies relationship to ascertain if some of the interpretations offered in the empirical literature are defensible. Gardners one-product, two-input model is extended to consider a partially integrated oligopsonistic industry. The main result is that, although the empirical relationship between captive supplies and the price received by independent producers is negative, it may or may not be attributed to noncompetitive conduct. Hence, for an econometric model to detect what type of conduct the relationship reflects, more structural detail is needed than what so far has been provided in the literature. Copyright 1998, Oxford University Press.

Markdown Pricing and Cattle Supply in the Beef Packing Industry

We determine the effect of anticipated and unanticipated cattle supply on the departure of fed cattle price from cattles 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.

Testing for switching market conduct

This paper tests for switching market conduct in an oligopsonistic industry. The model adopts Bresnahans procedure for identifying the oligopoly solution and integrates the procedure with a switching regression model. Applied to the US beef slaughter industry, two distinct regimes of conduct in the industry were identified. The two regimes are consistent with the time periods during which the industry has undergone major structural change.

Market Transparency and Market Structure: The Livestock Mandatory Reporting Act of 1999

The premise of the Livestock Mandatory Reporting Act of 1999 is that enhanced transparency promotes competition. This article provides a theoretical study of the consequences of such transparency for the structure, conduct, and performance of the livestock industry. I conclude that the usefulness of the Act to the livestock industry may not be in the value of reported information to feeders, as the supporters of the Act claim. Rather, by forcing packers to pool information at negligible marginal cost, the Act may foster more competitive conduct in the procurement of livestock. Copyright 2003, Oxford University Press.

Testing the Monopsony-Inefficiency Incentive for Backward Integration

In theory, monopsony at one stage in a vertically related market provides an incentive for backward integration into the adjacent competitive stages. By integrating backward, a monopsonist internalizes the monopsony inefficiency due to underemployment of the factor produced upstream. However, little is known about the importance of such incentive in practice. In this paper I provide an empirically implementable model to test the monopsony-inefficiency incentive for vertical integration. For illustration, the model is applied to the U.S. beef slaughter industry. Findings seem to support the monopsony-inefficiency incentive for backward integration by the industry into the live cattle market. Copyright 1996, Oxford University Press.