Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter February 5, 2020

Testing Market Power and Welfare Effects in the US Catfish Industry

Giap V. Nguyen, Curtis M. Jolly and Thong T. Nguyen

Abstract

An empirical specification of the conjectural variations model, which conforms to microeconomic theory, is estimated for the US catfish industry. We find the existence of market power exerted by US catfish processors. Processors force the price paid to catfish growers down by 52.88 cent per pound of live catfish, which costs US catfish growers about $300 million a year. US catfish growers can deter the negative effects of processors’ market power by increasing their farm supply flexibility. Further studies are needed to address the dynamics and competitive game strategies in the US catfish industry.

JEL Classification: L11; L13; D43

References

Amemiya, T. 1977. “The Maximum Likelihood and the Nonlinear Three Stage Least Squares Estimator in the General Nonlinear Simultaneous Equation Model.” Econometrica 45: 955–68.Search in Google Scholar

Applebaum, E. 1982. “The Estimation of the Degree of Oligopoly Power.” Journal of Econometrics 19 (2-3): 287–99.Search in Google Scholar

Azzam, A. M. 1992. “Testing the Competitiveness of Food Price Spreads.” Journal of Agricultural Economics 42: 248–56.Search in Google Scholar

Azzam, A. M. 1997. “Measuring Market Power and Cost-efficiency Effects of Industrial Concentration.” Journal of Industrial Economics 34: 377–86.Search in Google Scholar

Azzam, A. M., and G. Anderson. 1996. Assessing Competition in Meat Packing: Economic History, Theory and Evidence. Washington, DC: Grain Inspection, Packers and Stockyards Administration.Search in Google Scholar

Azzam, A. M., and E. Pagoulatos. 1990. “Testing Oligopolistic and Oligopsonistic Behavior: an Application to the U.S. Meat-packing Industry.” Journal of Agricultural Economics 41: 362–90.Search in Google Scholar

Azzam, A. M., and T. Park. 1993. “Testing for Switching Market Conduct.” Applied Economics 25 (6): 795–800.Search in Google Scholar

Bhuyan, S., and R. A. Lopez. 1997. “Oligopoly Power in the Food and Tobacco Industries.” American Journal of Agricultural Economics 79 (3): 1035–43.Search in Google Scholar

Bonanno, A., C. Russo, and L. Menapace. 2017. “Market Power and Bargaining in Agrifood Markets: A Review of Emerging Topics and Tools.” Agribusiness: An International Journal 34 (1): 6–23. 10.1002/agr.21542.Search in Google Scholar

Bouras, D., and C. R. Engle. 2007. “Assessing Oligopoly and Oligopsony Power in the U.S. Catfish Industry.” Journal of Agribusiness 25 (1): 47–57.Search in Google Scholar

Bouras, D., T. Frank, and E. Burgess. 2017. “Functional Forms and Oligopolistic Models: an Empirical Analysis.” International Journal of Economics and Financial Issues 7 (4): 645–49.Search in Google Scholar

Bouras, D., A. R. Kaliba, A. Bouras, and A. Dutta. 2010. “Testing for Market Power in the U.S. Catfish Processing Industry: A Dynamic Error Correction Approach.” Journal of Applied Economics and Policy 29 (1): 15–33.Search in Google Scholar

Byrd, S. (2008). Fuel, Feed Costs Crippling U.S. Catfish Industry. USA Today. Retrieved from http://www.usatoday.com/news/nation/2008-06-22-4018947804_x.htm Search in Google Scholar

Cai, X., K. W. Stiegert, and S. R. Koontz. 2011. “Oligopsony Fed Cattle Pricing: Did Mandatory Price Reporting Increase Meatpacker Market Power?” Applied Economic Perspectives and Policy 33 (4): 606–22.Search in Google Scholar

Cameron, A. C., and P. K. Trivedi. 2005. Microeconometrics: Methods and Applications. New York, NY: Cambridge University Press.Search in Google Scholar

Digal, L. N., and F. Z. Ahmadi-Esfahani. 2002. “Market Power Analysis in the Retail Food Industry: A Survey of Methods.” Australian Journal of Agricultural and Resource Economics 46 (4): 559–84.Search in Google Scholar

Dillard, J. 1995. Organization of the Catfish Industry: A Comment on Market Structure-conduct-performance. Paper presented at the Annual Meeting of the Catfish Farmers of America. Memphis, Tennessee.Search in Google Scholar

Genesove, D., and W.P. Mullin. 1998. “Testing Static Oligopoly Models: Conduct and Cost in the Sugar Industry 1890-1914.” Rand Journal of Economics 29: 355–77.Search in Google Scholar

Grau, A., and H. Hockmann. 2017. “Market Power in the German Dairy Value Chain.” Agribusiness: An International Journal 34 (1): 93–111.Search in Google Scholar

Hanson, T., and D. Sites (2010). 2010 U.S. catfish database. Retrieved from http://www.aces.edu/dept/fisheries/aquaculture/catfish-database/catfish-2010.php Search in Google Scholar

Hanson, T. R., S. Dean, and S. R. Spurlock. 2004. “Economic Impact of the Farm-raised Catfish Industry on the Mississippi State Economy.” Journal of Applied Aquaculture 15 (1-2): 11–28.Search in Google Scholar

Holloway, G. J. 1991. “Farm-retail Price Spread in an Imperfectly Competitive Industry.” American Journal of Agricultural Economics 73 (4): 979–89.Search in Google Scholar

Hyde, C. E., and J. M. Perloff. 1995. “Can Market Power Be Estimated?” Review of Industrial Organization 10: 465–85.Search in Google Scholar

Kaliba, A. R., and C. R. Engle. 2003. “Impact of Different Policy Options on Profit of Private Catfish Farms in Chicot County, Arkansas.” Aquaculture Economics and Management 7 (5/6): 309–18.Search in Google Scholar

Karp, L. S., and J. M. Perloff. 1989. “Dynamic Oligopoly in the Rice Export Market.” Review of Economics and Statistics 71: 462–70.Search in Google Scholar

Karp, L. S., and J. M. Perloff. 1993a. “Open-loop and Feedback Models of Dynamic Oligopoly.” International Journal of Industrial Organization 11: 369–89.Search in Google Scholar

Karp, L. S., and J. M. Perloff. 1993b. “A Dynamic Model of Oligopoly in the Coffee Export Market.” American Journal of Agricultural Economics 75: 448–57.Search in Google Scholar

Kinnucan, H., and G. Sullivan. 1986. “Monopsonistic Food Processing and Farm Prices: the Case of the West Alabama Catfish Industry.” Southern Journal of Agricultural Economics 18 (2): 15–24.Search in Google Scholar

Koontz, S. R., P. Garcia, and M. A. Hudson. 1993. “Meatpacker Conduct in Fed Cattle Pricing: an Investigation of Oligopsony Power.” American Journal of Agricultural Economics 75 (3): 537–48.Search in Google Scholar

Kouka, P. J. 1995. “An Empirical Model of Pricing in the Catfish Industry.” Marine Resource Economics 10 (2): 161–69.Search in Google Scholar

Kouka, P. J., and C. R. Engle. 1998. “An Estimation of Supply in the Catfish Industry.” Journal of Applied Aquaculture 8 (3): 1–15.Search in Google Scholar

Lee, Y. J., and P. L. Kennedy (2009). Measurement of Substitutability between U.S. Domestic Catfish and Imported Fish. Paper presented at the Southern Agricultural Economics Association Annual Meeting, Atlanta, Georgia.Search in Google Scholar

Lopez, R. A., A. M. Azzam, and C. Liron-Espana. 2002. “Market Power and/or Efficiency: A Structural Approach.” Review of Industrial Organization 20: 115–26.Search in Google Scholar

Masuda, K. (2002). A study of development in catfish farming (Master’s thesis), Auburn University, Auburn, AL.Search in Google Scholar

Muth, M. K., and M. K. Wohlgenant. 1999. “Measuring the Degree of Oligopsony Power in the Beef Packing Industry in the Absence of Marketing Input Quantity Data.” Journal of Agricultural and Resource Economics 24 (2): 299–312.Search in Google Scholar

Nguyen, G. 2010. Supply Response, Price Transmission, and Risk in the US Catfish Industry. PhD Disertation, Auburn University: https://etd.auburn.edu/bitstream/handle/10415/2147/Giap%20Dissertation%20-%20April%2029.pdf?sequence=2&ts=1425028512104 Search in Google Scholar

Quagrainie, K. K. 2006. “Analysis of U.S. Catfish Fillet Market Share Using a Flexible Logistic Model.” Marine Resource Economics 21: 33–45.Search in Google Scholar

Richards, T. J., P. M. Patterson, and R. N. Acharya. 2001. “Price Behavior in a Dynamic Oligopsony: Washington Processing Potatoes.” American Journal of Agricultural Economics 83 (2): 259–71.Search in Google Scholar

Schroeter, J., and A. Azzam. 1990. “Measuring Market Power in Multi-product Oligopolies: The US Meat Industry.” Applied Economics 22 (10).Search in Google Scholar

Schroeter, J., and A. Azzam. 1991. “Marketing Margin, Market Power, and Price Uncertainty.” American Journal of Agricultural Economics 73 (4): 990–99.Search in Google Scholar

Schroeter, J. R. 1988. “Estimating the Degree of Market Power in the Beef Packing Industry.” Review of Economics and Statistics 70 (1): 158–62.Search in Google Scholar

Silva, J. L., and S. Dean. 2001. Processed Catfish: Product Forms, Packaging, Yields and Product Mix. SRAC Publication Number 184. Southern Regional Aquaculture Center, Stoneville, Mississippi, USA.Search in Google Scholar

United States Department of Agriculture. 2011. Catfish Processing Reports. Washington, DC: National Agricultural Statistics Service, Agricultural Statistics Board.Search in Google Scholar

Varian, H. R. 1992. Microeconomic Analysis. New York, NY: W.W. Norton.Search in Google Scholar

Yotopoulos, P. A., and L. J. Lau. 1979. “Resource Use in Agriculture: Applications of the Profit Function for Selected Countries.” Food Research Institute Studies 17 (1): 111–19.Search in Google Scholar

Zidack, W., H. Kinnucan, and U. Hatch. 1992. “Wholesale- and Farm-level Impacts of Generic Advertising: the Case of Catfish.” Applied Economics 24 (9): 959–68.Search in Google Scholar

Appendix

A DF test for unit root VS. stationary

Variables Statistical Value 1 % Critical Value 5 % Critical Value 10 % Critical Value
lnQw −3.959 −3.455 −2.877 −2.57
lnPw −2.072 −2.339 −1.65 −1.284
lnGDP −2.205 −2.338 −1.65 −1.284
lnPOP −3.673 −3.987 −3.427 −3.13
lnPmeat 2.736 −2.58 −1.95 −1.62
lnQm −5.604 −3.455 −2.877 −2.57
lnQf −3.652 −3.455 −2.877 −2.57
lnPfeed −2.125 −2.339 −1.65 −1.284
lnPenergy −3.914 −3.988 −3.428 −3.13
lnFarmsize −1.987 −2.339 −1.65 −1.284
Year −9.626 −3.987 −3.427 −3.13
ProcessPrice −2.223 −2.339 −1.65 −1.284
FarmPrice −2.954 −2.339 −1.65 −1.284
Wage −2.182 −2.339 −1.65 −1.284
EnergyPrice −4.419 −3.988 −3.428 −3.13
Interest −2.889 −3.988 −3.428 −3.13
FirmNumber −4.341 −3.987 −3.427 −3.13

B Effects of Oligopsony power on farm market at different farm supply elasticities (ε)

Parameters Unit Farm market ε = 0.5 (Oligopsony) Farm market ε = 1 (Oligopsony) Farm market ε = 2 (Oligopsony)
ΔPrice cent/lb − 36.47 − 18.23 − 9.11
ΔVolume 1000 lb/month − 9,602 − 9,602 − 9,602
ΔCS 1000 $/month 5,956 2,588 904
ΔPS 1000 $/month − 16,431 − 8,215 − 4107
ΔTS 1000 $/month −9,799 −5,627 − 3,202
Revenue 1000 $/month 29,762 29,762 29,762
Published Online: 2020-02-05

© 2020 Walter de Gruyter GmbH, Berlin/Boston