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Two essays on multiproduct food oligopolies
Abstract
This dissertation is a collection of two essays on multiproduct food oligopolies and is motivated by the concerns over consolidation in the food and agriculture sector in general, and the merger between Tyson, a chicken processor, and IBP, a beef and pork processor in particular. The first essay looks at the welfare effects of mergers between food processors that produce demand-related goods. The second essay examines the welfare effects of the ability of multiproduct firms to collude. In both essays, the welfare effects are examined within the framework of a vertical marketing chain linking farmers, food processors, and consumers. Results from the first essay show that the effects of a merger hinge on the magnitude of the substitutability between the demand-related goods relative to that of the cost-efficiency effect from producing the goods jointly. If the merger generates cost savings through economies of scope that are larger than the magnitude of the substitutability effect, then the merger is welfare improving and, hence, socially desirable. Apart from the non-merged firms, which are worse off, all the remaining participating parties (i.e., farmers, consumers and the merged entity) are better off. On the other hand, if the substitutability effect is larger than the cost-efficiency effect, or in the presence of diseconomies of scope, the merger reduces total economic surplus. Numerical application of the model to the Tyson-IBP merger using own- and cross-elasticity estimates of demand for beef, pork and chicken shows that as long as the cost savings are larger than 0.37 percent, the Tyson-IBP merger improves social welfare. Results from the second essay show that, in the presence of scope economies, collusion is socially less harmful when products become less substitutable; and socially harmful in the presence of diseconomies of scope. Also, when firms become more cost-efficient, collusion is less socially harmful.
Subject Area
Agricultural economics|Business costs
Recommended Citation
Bouras, Brahim, "Two essays on multiproduct food oligopolies" (2006). ETD collection for University of Nebraska-Lincoln. AAI3237386.
https://digitalcommons.unl.edu/dissertations/AAI3237386