1. 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

2. Market Individual S D d s=MC Farmer’s as price takers

3. 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

4. Monopoly  One seller  Price setter »Firm supply is the market supply  Examples »Utilities, cable TV »Often regulated

5. D MRQ PS QMQM PMPM MR=MC PCPC Monopoly Supply and Demand

6. Monosony  One buyer  Price setter »Firm demand in market demand  Depend on market definition »Time, form, place

7. Monopoly / Monosony  Success depends on »Barriers to entry »Closeness of substitutes  Regional markets ????

8. 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

9. Oligopoly / Oligopsony  Often price leader/follower  Emphasis on non-price comp.  Examples »Autos, farm equipment, cereals

10. Oligopoly / Oligopsony  Incentive to try cartels »Work together to set supply or price  Some government sponsored »OPEC »Marketing Boards »Illegal in US

11. Monopolistic Competition  Between olig and perfect comp.  Relatively few firms  Many close substitutes  Try to differentiate product

12. Monopolistic Competition  Very elastic demand  Prices nearly alike as consumers will switch  Emphasis on non price comp. »Pricing strategy »Carcass merit, value based marketing

13. Structure and performance  Perfect competition will produce output and aggregate price with the greatest operational efficiency  Monopoly has the lowest operational efficiency

14. Structure and performance  Olig & Mono Comp »In between perfect and monopoly »Often lead to: –Excess capacity –Excess non-price competition

15. Competitive Conditions  Farm markets are near perfect competition but changing »Product differentiation »Branded products »Advertising »Promotion

16. 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

17. CR4 in Ag  Cattle slaughter67  Steer and heifer slaughter80  Hog slaughter56  Soybean mills71  Fluid milk 22  Poultry processing34  Breakfast cereal85

18. Leaders  Beef »IBP/Tyson, Excel/Cargill, Swift/Conagra, Farmland, Smithfield  Pork »Smithfield, IBP/Tyson, Excel/Cargill, Hormel

19. 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

20. Concentration and Market Definition  Iowa steer and heifer slaughter  US steer and heifer slaughter  US cattle slaughter  All livestock slaughter  All protein production

21. Barriers to Entry  Key resources »Inputs, $$$, skills »Patent  Economies of scale  Location  Information

22. Workable Competition  Enough buyers and sellers to provide alternatives  No one can coerce a rival  Firms respond to profit and loss

23. Workable Competition  No collusion  Enough entry and exit for rivals to challenge  Free access of buyers and sellers

24. 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

25. 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)

26. Concentration summary  More narrowly defined markets are more concentrated  Integration is not concentration  Economies of scale »Plant or firm level economies »May drive concentration