Market Power Effects of the Livestock Mandatory Reporting Act in the U.S. Meat Industry: a Stochastic Frontier Approach Under Uncertainty

Abstract

The present study evaluates changes in market power in the U.S. red meat industry after the implementation of the 1999 Livestock Mandatory Reporting (LMR) Act. It employs the recently developed stochastic frontier approach of market power estimation and accounts for uncertainty in the market, capturing this way the counteractive strategic and risk effects generated by the increased transparency of the Act. The net effect of the LMR Act on market power exerted by packers was estimated. Time series data on the U.S. cattle/beef and hog/pork industries for the period 1970–2010 were employed. The empirical findings suggest that the mandatory reporting program has generated a pro-competitive impact in both livestock markets.