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**Effects of Concentration on Cattle Prices**

Growth of firm and plant size in recent years generally is believed to have led to increasedefficiency and lower per-unit processing costs. There also is concern that increased firm size and concentration have enabledpackers to exercise market power. The researchers who worked on this project tested for the effects of market power onprices paid for cattle using a combination of weekly and monthly plant-level data on inputs, outputs, costs, and revenue. 

The research method required estimation of slaughter-processing cost functions that expressthe relation between output and unit costs. The underlying assumptions of the test for exercise of market power also required thatplants attempt to maximize profits. While the researchers were able to estimate cost relationships, they found this waspossible only if the assumption about profit maximization was relaxed. That is, relationships within the monthly and weekly datadid not support a basic assumption required for use of their methodology; that plants maximized profits within the timeperiod (i.e., weekly) being modeled. Thus, the analysis was unable to determine definitively whether market power is usedat a national level to influence prices. The results indicated that different models and methods, different data, or a combinationof the two, are necessary to test for the exercise of market power.

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