Cost economies and market power: The case of the US meat packing industry

Increasing size of establishments and resulting concentration in U.S. indus tries may stem from various types of cost economies. In particular, scale e conomies arising from technological factors embodied in plant and equipment may be a driving force for such market structure changes. In this case, ty pical market power measures like Lerner indices can be misleading: if scale (cost) economies prevail, cost efficiencies rather than market deficiencie s may actually underlie the observed patterns. In this study, I provide mea sures of scale economies and market power for the U.S. meat packing industr y, whose increased consolidation and concentration have raised great concer n in policy circles. The results suggest that this trend has been motivated by cost economies, but that little excess profitability exists, and on the margin the potential for taking further advantage of such economies has be come minimal.