Collusion-enhancing effects of the own- and cross-price demand elasticities in merging multiproduct food industries: The case of chicken and red meat in the United States

Abstract

The recent wave of megamergers sweeping the US food industry has raised significant concerns regarding “conglomerate” market power. Beef processors have been merging with pork and/or poultry processors (and vice versa). Concurrently, consumers have changed their attitude toward diet and health. The poultry industry has been more responsive to the changes in consumers’ lifestyles than the red meat industry by providing products which address health concerns. As a consequence, consumers exhibit stronger preference for chicken and are more willing to substitute chicken for red meat. The objective of this study is to examine the sustainability of collusion between multiproduct meat processing firms, under different values of the own-price demand flexibility of chicken as well as cross-price elasticities of demand between the markets of chicken and red meat. The findings indicate that the less (more) responsive demand for chicken gets to changes in its own price (price of red meat), the easier it gets for firms to sustain collusion.