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Abstract
In this article, we estimate a Green and Porter (GP 1984) trigger pricing model to analyze
weekly marketing margin data for the U.S. beef packing industry from 1992-2000.
Oligopsonists are hypothesized to follow a discontinuous pricing strategy in equilibrium,
and we focus on shocks in the normal throughput of supply as a potential catalyst for
regime switching between cooperative and noncooperative phases. We use an algorithm
developed by Bellone (2005) that relies on Hamilton's (1989) multivariate first-order Markov
process to test for the cooperative/noncooperative switching behavior. We find strong
evidence that links switching conduct by packers to disruptions in coordinating the derived
demands for processed beef with the supply of live cattle. Once switched, cooperative
regimes lasted an average of 21 weeks, while noncooperative regimes averaged 33 weeks.
The average marketing margin for processed beef was 66% higher in the cooperative
regimes compared to the noncooperative regimes. This implies an annual average increase
in profits of 491 million dollars to the beef packing industry.