Perfect Competition Large number of buyers and sellers No product differentiation Low barriers to entry and exit Perfect and equal information No price restrictions & no collusion Farmer’s as price takers s=MC S d D Market Individual Consequences of Perfect Competition Individuals are price takers profits by costs Cost - price squeeze Don’t perceive horizontal competition Marketing decisions are » Time, place, and form Monopoly One seller Price setter » Firm supply is the market supply Examples » Utilities, cable TV » Often regulated Monopoly Supply and Demand P S PM MR=MC PC D QM MR Q Monosony One buyer Price setter » Firm demand in market demand Depend on market definition » Time, form, place Monopoly / Monosony Success depends on » Barriers to entry » Closeness of substitutes Regional markets ???? Oligopoly / Oligopsony Few sellers or buyers Individuals can influence price » Co-exist with rivals » More stable prices Optimal output is less than profit max output for any one firm Oligopoly / Oligopsony Often price leader/follower Emphasis on non-price comp. Examples » Autos, farm equipment, cereals Oligopoly / Oligopsony Incentive to try cartels » Work together to set supply or price Some government sponsored » OPEC » Marketing Boards » Illegal in US Monopolistic Competition Between olig and perfect comp. Relatively few firms Many close substitutes Try to differentiate product Monopolistic Competition Very elastic demand Prices nearly alike as consumers will switch Emphasis on non price comp. » Pricing strategy » Carcass merit, value based marketing Structure and performance Perfect competition will produce output and aggregate price with the greatest operational efficiency Monopoly has the lowest operational efficiency Structure and performance Olig & Mono Comp » In between perfect and monopoly » Often lead to: –Excess capacity –Excess non-price competition Competitive Conditions Farm markets are near perfect competition but changing » Product differentiation » Branded products » Advertising » Promotion Market Concentration Percent of sales by largest firms 4 firm concentration ratio CR4 » Strong olig CR4 > 50% » Weak olig CR4 33-50% » Unconcentrated CR4 < 33 Competition as concentration All types in Ag CR4 in Ag Cattle slaughter Steer and heifer slaughter Hog slaughter Soybean mills Fluid milk Poultry processing Breakfast cereal 67 80 56 71 22 34 85 Leaders Beef » IBP/Tyson, Excel/Cargill, Swift/Conagra, Farmland, Smithfield Pork » Smithfield, IBP/Tyson, Excel/Cargill, Hormel Leaders Grain Handling » ADM, Cargill, Bunge, Cenex Harvest States, Peavey/Conagra Ag Chemicals » Bayer CropScience (Aventis), Syngenta, Monsanto, BASF, Dow Agrosciences Seeds » DuPont (Pioneer), Monsanto, Syngenta, Groupe Limagrain, Grupo Pulsar Concentration and Market Definition Iowa steer and heifer slaughter US steer and heifer slaughter US cattle slaughter All livestock slaughter All protein production Barriers to Entry Key resources » Inputs, $$$, skills » Patent Economies of scale Location Information Workable Competition Enough buyers and sellers to provide alternatives No one can coerce a rival Firms respond to profit and loss Workable Competition No collusion Enough entry and exit for rivals to challenge Free access of buyers and sellers Role of Government Prevent or regulate monopoly Anti-trust laws to prevent some types of behavior Coop laws to strengthen smaller firms by banning together Government Regulations Grain Inspection, Packers and Stockyards Administration (GIPSA) » Division of USDA » Regulation of markets and trade » http://www.usda.gov/gipsa/aboutus/bkgd2.htm Federal Trade Commission » Anti-Trust investigations Attorney General (State) Concentration summary More narrowly defined markets are more concentrated Integration is not concentration Economies of scale » Plant or firm level economies » May drive concentration