Competition, Bargaining Power, and the Cattle Cycle *

Abstract

Cattle production follows a dynamic cycle that has often been analyzed, and cattle markets receive much scrutiny because of the potential for buyer market power. The relationship between the two has been little studied, however. This paper provides a simple conceptual framework to study how the cattle cycle and market concentration jointly affect the bargaining power of producers and packers yielding the following main results. Not surprisingly, a larger cattle stock reduces producers' bargaining position, which results in a lower fed cattle price. More importantly, however, the cattle stock's negative effect on price is magnified by the market concentration in beef packing. Thus, the cycle itself is very importantly related to a posited cycle of bargaining power between cattle producers and beef packers. Secondly, the model also shows how beef packers may use the special feature of cattle as both consumption and capital goods to lower the cattle price by influencing cattle inventories.