9. The broiler chicken market comprises virtually all chicken consumed in the United States. Historically, broiler...

9. The broiler chicken market comprises virtually all chicken consumed in the United States. Historically, broiler chicken was priced on a boom-and-bust cycle — when prices for chicken went up, so did supply; then prices would fall. Suppliers and retailers argue that they paid too much for chicken—a burden that has likely been felt by consumers, too. But then, as Watts puts it, “it’s been boom for the past 10 years or so.” Plaintiffs in these lawsuits allege that starting in 2008, prices for chicken suddenly stabilized and began to rise, even as the inputs those companies sold to farmers fell. They allege that this stabilization was a result of collusion among the companies, made possible in part by a piece of database software called Agri Stats. The first lawsuit brought against the processors was a class action filed by a food wholesaler, Maplevale Farms, in September 2016. That suit alleged that from 2008 onward, Tyson and Pilgrim’s Pride coordinated their efforts to reduce their broiler stock and forced a “nearly 50 percent increase in Broiler wholesale prices since 2008, despite input costs (primarily corn and soybeans) falling roughly 20 percent to 23 percent over the same time period.” Maplevale claimed that consequently, it paid inflated prices for chicken over the course of several years. Through Agri Stats, poultry companies can share information about production numbers, bird sizes, financial returns, and more. The database company gathers information from 95 percent of poultry processors and tracks 22 million birds a day. Companies can then use this information, according to farmers, retailers, and distributors, to set a higher price for their products. Assume extreme consolidation in the poultry processing sector precipitated these and other allegations of anticompetitive conduct among the top companies. Tyson and Pilgrim’s Pride alone control 60 percent of the market. Sanderson Farms, Perdue, and Koch Foods control another 25 percent.

a. The chicken companies are engaging in what type of economic behavior? ( Characteristic of this market structure. )(4 pts)

b. This behavior is characteristic of what market structure? Draw the graph for this market structure or describe it. (Put your answer on the answer sheet ) ( 8 pts)

Expert Solution

a. The characteristics of chicken market and the economic behavior:

The product sold in this market is identical or with slight differentiation that is chicken.
Though there is reduction in input price, still the final price of the chicken didn’t reduce. It remains as it is. This represents the price rigidity behavior.
In this market the number of players is a few.
Collusion is seen in this market.
Tyson and Pilgrim’s Pride alone control 60 percent of the market. Sanderson Farms, Perdue, and Koch Foods control another 25 percent which means the company who has the highest market share become price leader and other are price follower.

b. This behavior is characteristic of oligopoly market structure. The major characteristics of such market is as under:

All players of oligopoly market are Interdependent on each other in decision making.
Advertising plays an important role in oligopoly market.
The number of players is in this market is a few, that is it can be counted on finger tips.
A real Cut throat competition is found in this market.
Due to keen competition in this market, it is very difficult to enter in the market. There are some types f barriers found for new entrants which restrained them to enter in such market.
The size of the firm is not equal. Some may be small and some may be large. So, there is no uniformity in the size of the player in the market.
Price rigidity is the most important feature of the oligopoly market. If one firm reduce the price other firms also follows the same. But one firm increase the price others will not follow the same suit. So price rigidity take place.
kinked demand curve is the unique characteristics of this market. The demand curve has a kink in it. Due to the interdependence of the oligopolist, the demand curve is indeterminate.
Collusion and cartel are found in this type of market.
The graph for oligopoly market is as under:

Rahul Sunny answered 1 month ago

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