Beef Wholesale-Retail Marketing Margins and Concentration

Abstract

The present study uses a model similar to the one developed by Cowling and Waterson to examine and test the relationship of wholesale-retail marketing margins and concentration for the US retail beef industry. However, where Cowling and Waterson tested across industries, this study focuses on one industry only, the retail beef industry, and tests the relationship across retailing regions of the United States.1 By doing so, some of the problems in inter-industry analysis (of omitting certain important structural variables which were pointed out by Cowling and Waterson and which necessitated looking at changes in the variables) are made less severe. If regional data can be obtained, structural factors other than concentration-such as price elasticity of demand, the rate of growth of demand over time and the rate of technical change and the extent of product differentiation, which are important in an inter-industry analysis-can reasonably be assumed constant for a single industry across regions. In addition, other determinants of price-cost margins, such as barriers to entry and differing capital requirements for which information is often unavailable, may also be assumed constant. Using an error components model, one in which time series and crosssection data are combined, the present study finds a significant positive relationship between the price-cost or wholesale-retail beef marketing margins and the four-firm retail concentration ratio. The advantage of using a time series of cross-sections, besides broadening the data base, is that it helps to eliminate the possibility (common to cross-sectional analysis alone) that one is observing a short-run effect or disequilibrium rather than a long-run effect, since high margins may reflect the initial stages of competitive adjustment rather than stable oligopolistic or monopolistic conditions. In fact, the lack of a significant relationship for non-durables found in the work cited earlier was hypothesized by Cowling and Waterson as being due to their tests picking up these short-run or disequilibrium situations.