Dale J. Menkhaus

Collusive Practices in Repeated English Auctions: Experimental Evidence on Bidding Rings

The repeated meeting of buyers at English auctions, where multiple units are sold, is a common occurrence. The art auctions at Sotheby’s, Christie’s, and other prestigious auction houses are attended by a regular group of institutional buyers. More mundanely, the same taxicab buyers meet at vehicle auctions for used police cars (Jon P. Nelson, 1995). Commission order buyers attend the same livestock and agricultural commodity auctions; these buyers may be agents for multiple meat processors (U.S. Department of Agriculture, Grain Inspection, Packers and Stockyards Administration, 2001). The 1946 American Tobacco antitrust case [American Tobacco Co. et al. v. United States, 328 U.S. 781 (1946)] is a well-known account of how buyers of tobacco operated to hold down the price of auctioned leaf tobacco at various sites. Buyers for the big three cigarette manufacturers had developed facilitating practices that helped them purchase raw tobacco at relatively low prices. These buyers voluntarily restricted themselves to attend the same auctions; buyers were aware of the amount of leaf and the tobacco grades available at auction sites; they had instructions from the cigarette makers on the highest bid prices they could pay; and communication among these buyers seemed evident from a coordinated practice of buying low-grade tobacco that was not used by the makers. In the sale of livestock, cattle producers have claimed that packer-buyers act to hold down cattle prices at the auction site. There are a few large processors who give their agents “buy orders.” These orders, along with further communication between the processor and agent, instruct the agent on the number of cattle to purchase during a given week and provide a schedule of prices they can pay for varying types of cattle. Some agents represent more than one processor (or packer) and therefore have multiple buy orders. Agents repeatedly meet each other at regional cattle auctions. They may not be the only buyers, but they are the largest purchasers of slaughter cattle brought to market, and at most auction sites have substantial monopsony power. This paper documents the impacts of several practices that may facilitate low sale prices when multiple units are sold at repeated English auctions. Laboratory English auction markets are created. The number of symmetric buyers attending the auction is either six or two, with total demand in these two environments held constant. The six-buyer market is intended to represent a relatively competitive environment, while auctions with two buyers represent rivalry with substantial monopsony power held by each agent. We use these two market environments to study how selected treatments, or facilitating influences, affect the behavior of buying agents. The six-buyer market generally is viewed as a control for comparison to the dominant twobuyer environment, but very collusive behavior may be observed in the six-buyer auctions, depending upon market practices. * Phillips: Department of Economics and Finance, University of Wyoming, P.O. Box 3985, Laramie, WY 82071 (e-mail: owenphil@uwyo.edu); Menkhaus: Department of Agricultural and Applied Economics, University of Wyoming, P.O. Box 3354, Laramie, WY 82071 (e-mail: menkhaus@uwyo.edu); Coatney: U.S. Department of Agriculture, Grain Inspection, Packers and Stockyards Administration, Competition Branch, Aurora, CO 80011 (e-mail: kalyn.t.coatney@usda.gov). This work has been supported by the U.S. Department of Agriculture under grant numbers USDAGIPSNC5418 and USDAG00354009126. The findings and conclusions expressed in this paper are those of the authors and do not necessarily reflect the views of the funding agency. 1 These are regional auctions houses where slaughter cattle (primarily cull cows and fed steers and heifers) and feeder cattle are sold. Cull cows are animals taken out of a herd and slaughtered because of age, inability to produce calves, or reduced milk production. Concerns regarding slaughter cow possessors sharing common purchasing agents have been raised in “Assessment of the Cattle and Hog Industries Calendar Year 2000,” U.S. Department of Agriculture, Grain Inspection, Packers and Stockyards Administration, June 2001.

The effects of perceived product attributes on the perception of beef

The objective of this study was to identify perceived characteristics of beef which impact quality perception. Results indicate that concerns with beef related to cholesterol and calorie content, artificial ingredients, convenience characteristics, how it is displayed in the store, and expense each significantly adversely affected quality perception.

Factors Influencing Support for Rural Land Use Control: A Case Study

Agricultural land is being converted into rural residences at an unprecedented rate in the Inter-mountain West. Survey data have been collected for Sublette County, Wyoming concerning preferences for private land use and land use control. Selected land use controls include zoning, purchase of development rights and cluster development. Local in-migration appears to be driven by the pursuit of open space and environment amenities. Logit models are estimated for public and private choice co-variates. Private concerns about land use are the chief determinants of land use control approval.

An Experimental Economics Approach to Analyzing Price Discovery in Forward and Spot Markets

Laboratory experiments are used to generate data that facilitate investigation of pricing behavior in forward and spot markets. Results suggest a tendency for prices in a spot market to converge to levels higher than those in a forward market. The difference in these market environments is the supply schedule. Buyers in a spot market are aware that supply is inelastic and become relatively aggressive bidders. Forward markets have a relatively elastic supply schedule and buyers fare better. This may motivate firms to promote forward markets and/or vertically integrate in the procurement of inputs.

Feeder Cattle Price Determinants: An Hedonic System of Equations Approach

Price is expected to vary among lots of cattle depending on the levels and types of characteristics associated with a particular lot of cattle. Commonly-used factors to formulate characteristics demand models for cattle have included frame size, flesh condition, weight, and outside market factors (e.g., price expectations and transaction and production costs) occurring simultaneously during the cattle transaction (Bailey, Brorsen, and Fawson; Faminow and Gum; Lambert et al.; Buccola; Schroeder et al.). Moreover, price may vary among lots of cattle because of varying demand schedules for different types of cattle and varying contractual conditions of cattle transactions. Thus, the characteristics supplied by a lot of cattle, along with outside market factors and various contractual conditions, contribute to the overall price paid for a particular lot of cattle. Previous characteristics demand models or hedonic price analyses have not considered possible interdependencies among various input/ product characteristics (Bailey, Brorsen, and Fawson; Bailey, Brorsen, and Thomsen; Faminow and Gum; Lambert et al.; Ladd and Suvannunt; Arguea and Hsiao; Schroeder et al.). However, using cattle as an example, possible interdependencies between genetic and physical characteristics may arise, e.g., breed is a determinant of the observed levels of other physical characteristics. Therefore, breed may not only influence price directly, but may also impact price indirectly through its direct influences on physical characteristics such as weight, flesh condition, and frame size (McWhir and Wilton; Taylor; Jenkins et al.; Amer, Kemp, and Smith;

Laboratory Behavior in Spot and Forward Auction Markets

Auctions that require advance production increase seller costs because inventories must be held. This cost does not exist in production-to-demand markets for which production follows trading, and sales exactly match quantities produced. Data from laboratory computerized double auction markets show that advance-production prices are significantly higher and quantities traded are significantly lower than they are in production-to-demand auctions. Price convergence patterns show advance-production sellers moving toward 9% higher prices and 22% greater earnings.

Food Retailing and Supply Chain Linkages in the Russian Federation

Abstract This paper focuses on the evolution of Russian food retailing and linkages between and among firms in the food supply chain. Intermediation theory is used to develop a conceptual framework. Intermediaries have played an important role throughout the Russian food supply chain fulfilling the function of matching sellers and buyers. Tighter vertical linkages between firms in the Russian food industry are becoming more prevalent, and the roles of intermediaries may be performed by agents acting on behalf of a vertically integrated principal. The food retailing sector in the Russian Federation is evolving to be a source of information from the consumer to upstream firms.

Private Open Space and Public Concerns

Agricultural lands provide open space, which is valuable as wildlife habitat, as a visual resource, and as access to public lands. Sublette County, WY, is the basis for a case study relevant to rural land use planning. A mail survey provided responses from landowners and other residents. Agricultural land uses and public involvement in land use planning were approved. Land use controls including zoning were accepted. Differences existed between residents and nonresidents regarding personal income, local employment, the future importance of extractive industries, and the reasons for living in the county.

Supply Response in the U.S. Sheep Industry

A dynamic supply model of the U.S. sheep industry is constructed. The model incorporates restrictions on fixed capital and the demographic characteristics of the breeding flock. The model is estimated using least squares techniques and simulated to generate a matrix of short- and intermediate-run elasticity estimates. The estimates indicate that sheep supply is positively related to lamb price in the short run and the intermediate run (ten plus years), although inelastic in the short run. The supply response to wool price also is positive and quite elastic in the intermediate term. These results imply that both lamb and wool prices are important to the maintenance of the U.S. sheep industry.

Price Discovery in Private Negotiation Trading with Forward and Spot Deliveries

Advance production in spot markets increases seller costs because inventories must be held. This cost does not exist in production-to-demand (or forward) markets, for which production follows trading, and sales exactly match quantities produced. Data from laboratory-computerized markets that trade through private negotiation are analyzed. For the experimental supply and demand conditions, price convergence patterns show spot prices 10.8% lower and the number of trades 12.4% fewer than forward outcomes. The adverse impact of advance production and private negotiation on seller earnings is emphasized when earnings are compared with those from double auction trading.