Competition, Bargaining Power, and the Cattle Cycle*
John M. Crespi
jcrespi@agecon.ksu.edu
Kansas State University
Tian Xia
tianxia@agecon.ksu.edu
Kansas State University
Rodney Jones
Kansas State University
jonesrd@agecon.ksu.edu
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.
* Citations should indicate that this paper is a draft presented at the 2008 AAEA meetings in Orlando, FL.
Competition, Bargaining Power, and the Cattle Cycle
Introduction.
While it is well known that cattle production follows a dynamic cycle, indeed, one that has often
been analyzed and, while cattle markets have received much attention because of the potential
for buyer market power, any relationship between the two has been little studied. The purpose of
this paper is to measure the cattle industry’s market power during the ebbs and flows of the
cycle. How the oft-analyzed cattle cycle interacts with packer concentration, affecting the
bargaining power of cattle produ