IMPLEMENTATION OF ELECTRONIC MARKETING OF SLAUGHTER CATTLE IN VIRGINIA: REQUIREMENTS AND PROCEDURES

Increased attention is being directed to elec- within which cattle in the southern and eastern tronic markets in the major agricultural com- states are bought and sold. With decentralized modities. Electronic markets are characterized markets, the structure on the demand side by a trading arena that has been centralized often approaches an oligopsony or even a via some electronic medium. The medium used monopsony. Physical proximity of buyer and may be a conference telephone, teletype, com- product is typically required. By allowing buyputer system, or some combination of these or ing by description, an electronic marketing other mechanisms. All make possible the sale system can significantly increase the number of a commodity by description without requir- of buyers with access to the product. The ing the physical proximity of buyer, seller, and marginal buyer is able to enter the market product. In theory, this capability can elimi- when prices dip and exit the market when nate or reduce the spatial imperfections and prices surge. This ease of entry and exit makes pricing problems now present in many "thin" the market more responsive to short-run markets, a topic of increasing concern through- changes in supply and demand. out the food industry (Hayenga). The growing body of literature which treats Thin markets generally are markets with this area in a theoretical context suggests eleclittle trading volume and/or markets in which tronic marketing has the potential to increase individual offers to buy or sell exert a signifi- both operational efficiency and pricing efficiencant influence on price or other terms of trade. cy (Ethridge; Henderson et al., 1976; HenderA local livestock auction with a limited number son et al., 1979; Johnson). The limited empiriof buyers or buyers with limited orders is an cal research that has been done indicates that example. Because the quantity offered for the both pricing efficiency (Henderson et al., 1976; day is essentially fixed when the auction pro- Holder; Lu, 1968; Lu, 1969) and operational cess starts, the seller has little protection efficiency (Engleman et al.; Glazener; Henderagainst a situation in which an unusually large son et al., 1979) can be improved by electronic supply will be taken by the available demand systems. Operational efficiency can be imonly at prices significantly below prices that proved by reducing the costs of marketing. would have been realized had a smaller quan- Assembly, transaction, and transfer costs can tity been offered. The only marginal "demand" be cut by reducing the multiple handling, comes from the auction market, any reserva- cross-hauling, and time consumed in many of tion price set by the seller, and the bids of the current markets. Pricing efficiency should traders looking for prices low enough to allow be improved by providing access to more arbitrage between markets. buyers and by encouraging the use of descripConceptually, the bid curves of individual tive terms which identify and categorize buyers in any market are based on their per- important value-related product attributes. ceptions of the buying strength in the market. Feeder pigs, slaughter hogs, slaughter The number of buyers is not an accurate lambs, and slaughter or feeder cattle are being barometer of buying strength, but there is sold by conference telephone auctions in at typically a positive correlation between buying least eight states (Henderson et al., 1976). strength and the number of buyers. Other Slaughter hogs are sold by teletype auctions in things equal, the bid curve of each buyer tends Ontario (Peer) and Alberta (Hawkins et al.). to move up (increase) with increases in the Computerized trading systems are being used number of buyers with access to the available to sell cotton in Texas (Ethridge, Highley), supply. eggs in New Hampshire (Cox) and Great BriAn electronic marketing system has the po- tain (Schwartz), and wool in Australia (Comtential to change the competitive structure puter Sciences of Australia). The Agricultural