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Game theory application to Fed Cattle procurement in an experimental market

By Jared G. Carlberg, Robert J. Hogan and Clement E. Ward

Abstract

Consolidation in meatpacking has elicited many market power concerns and studies. A noncooperative, infinitely repeated game theory model was developed and an empirical model estimated to measure beef packing firm behavior in cattle procurement. Experimental market data from three semester-long classes using the Fed Cattle Market Simulator (FCMS) were used. Collusive behavior was found for all three data periods though the extent of collusion varied across semester-long data periods. Results may have been influenced by market conditions imposed on the experimental market in two of the three semesters. One was a marketing agreement between the largest packer and two feedlots and the other involved limiting the amount and type of public market information available to participants. Findings underscore the need for applying game theory to real-world transaction-level, fed cattle market data. [EconLit Citations: C730, L100]. © 2009 Wiley Periodicals, Inc.

DOI identifier: 10.1002/agr.20181
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