Agricultural Economics Department
Date of this Version
January 2003
Abstract
This paper develops a conceptual model that analyzes the impact of increasing market transparency under the Livestock Mandatory Reporting Act of 1999 on the incentives for collusion in the U.S. meatpacking industry. More than likely, meatpackers will have asymmetric priors regarding the distribution of livestock prices. Moreover, they lack the incentives to voluntarily reveal their real priors. Thus, the enforcer of the Act faces a problem of asymmetric information regarding the informativeness of publicly disclosed market reports relative to that of packers’ priors. Analytical results predict that divergent priors of Bayesian packers can be updated by more informative market reports, so that the resultant posteriors converge, enabling packers to identify a more efficient, unanimous trigger price. This enhances observability of deviations from collusive behavior, and increases the internal policing efficiency by a cartel that employs trigger price strategies to monitor deviations by its members. Contrary to the Act’s well-intended objectives, this is consistent with promoting collusion and decreasing market efficiency.
Comments
Published in Journal of Agricultural & Food Industrial Organization Volume 1,Article 14, 2003. Copyright © 2003 by the authors. Used by permission.