A stochastic frontier estimator of the aggregate degree of market power exerted by the US meat packing industry

Abstract

The objective of this study is to measure the aggregate degree of market power exercised by the US meat packing industry with the employment of the recently developed stochastic frontier estimator (SFA) of market power. Furthermore, the present work shows that the SFA estimation technique can be used in order to measure the sum of oligopsonistic and oligopolistic power along a food supply chain. Annual time series data for the period 1970–2011 were employed. The empirical results reveal that, in the US meat packing industry, the farm-to-wholesale price spread is 3.74% above the marginal processing cost. These findings indicate that rather a small percentage of the farm-to-wholesale price spread can be attributed to market power in the US meat packing sector.