Cost Economies and Market Power in the U.S. Meat Packing Industry

<p dir="ltr">This study investigates the cost structure, scale economies, and market power dynamics in the U.S. meat processing industry from 1978 to 2016. Using a system of equations derived from a Generalized Leontief cost function, we capture sequential firm decision making across short-, intermediate-, and long-run horizons. Coefficient estimates are used to construct structural measures of market power, marginal cost, scale elasticities, and profitability. Results reveal that cost efficiency and market power are not mutually exclusive, but their relative importance shifts with the industry’s ability to adjust inputs and scale operations. We observe in the short run, limited flexibility leads to diseconomies of scale and greater reliance on pricing power to maintain profits. As the firms gain input adjustability, scale economies emerge as the primary source of performance gains, and output pricing power diminishes. We find no strong evidence of material input (live animal) market power. Overall, these findings underscore how input flexibility and market structure jointly shape firm performance, offering insights for antitrust, innovation, and competitiveness in highly concentrated and capital-intensive industries.</p>