Meatpacker conduct in fed cattle pricing: An investigation of oligopsony power

Market power in regional fed cattle markets is measured with an econometric model which links behavior of the margin between boxed beef and fed cattle prices to an economic model of conduct. A noncooperative game theoretic model suggests that for tacitly collusive pricing behavior to persist in equilibrium, oligopsonists must follow a discontinuous pricing strategy. Meatpackers pay low prices for cattle during cooperative phases and purchase cattle aggressively during noncooperative phases. Tests for cooperative/noncooperative conduct and measures of market power are presented. Fed cattle prices in four direct trade regions in the central United States are examined. Evidence of cooperative/noncooperative conduct is present in all markets but has declined over time. Varying conduct across markets and over time suggests it is important to continue monitoring fed cattle markets to assure a competitive environment.