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Arbitrage cost models were used to measure the degree of integration between regional geographic AMS reported fed cattle markets. The method measures the implicit arbitrage costs and probability of arbitrage between two markets, and is also used to test the 5% rule from the Federal Trade Commission and Department of Justice Merger Guidelines. The results suggest that all U.S. fed cattle markets are well integrated. However, there are degrees of integration. East coast and west coast markets are distinct from markets in the central U.S. Further, arbitrage costs are lower from small volume markets to large markets, while costs are higher from large to small markets. Thus, for antitrust analysis, large market regions may be considered in isolation while small regions should include neighboring large regions in the economic market definition.


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