Market Power in the Beef Packing Industry: Is It Time For a New Approach?

Consolidations in the U.S. beef packing industry have prompted concern within the government and interest among academics over whether packers possess and are able to exercise market power. Economists have generated numerous studies to test for and measure market power in beef packing, but the empirical studies have failed to provide definitive results on the presence of market power and whether any existing market power is exercised. The thesis of this paper is that the standard approach to measuring market power, conj ectural variations, is based on a model which may not accurately describe competition between packing firms. I first discuss the institutional factors of beef packing that are not captured by the conjectural variations approach. I then present a theoretical extension of the CV approach which is based on a more realistic description of competition between packing firms. The paper concludes by suggesting alternative techniques for measuring market power