Measuring Oligopsony Power in the U.S. Cattle Procurement Market: Packer Concentration, Cattle Cycle, and Seasonality Inbae Ji Korean Rural Economic Institute, Seoul, Korea 130-710. E-mail: jiinbae@krei.re.kr Chanjin Chung Department of Agricultural Economics, Oklahoma State University, Stillwater, OK 74078. E-mail: chanjin.chung@okstate.edu Jungmin Lee Department of Agricultural Economics, Oklahoma State University, Stillwater, OK 74078. E-mail: jungmin.lee@okstate.edu ABSTRACT This study estimates the oligopsony power in the U.S. cattle procurement market in consideration of market structure of beef-packing industry, cattle supply, and seasonality. Our conceptual model represents a price-setting monopsonist competing with multiple monopsonists, and the corresponding empirical model includes a time-varying parameter framework so that it can trace the change in packers’ imperfect competition behavior in the cattle procurement market over time. The empirical model is applied to three cattle procurement markets in the United States: national, Nebraska, and Texas/Oklahoma/New Mexico. Empirical results show the existence of oligopsony market power in the U.S. cattle procurement market. The oligopsony market power is considerably inﬂuenced by cattle cycle and seasonality, which indicates that packers tend to increase their margin during the excessive cattle supply period while maintaining lower margin during the short cattle supply period. [EconLit citations: D43, L11, L13, Q13]. C  2016 Wiley Periodicals, Inc. 1. INTRODUCTION Many studies examining market power behavior of the U.S. beef packing industry generally consider the change in market structure such as horizontal concentration and vertical inte- gration as sources of market power (e.g., Azzam, 1997; Azzam & Schroeter, 1995; Chung & Tostao, 2009, 2012; Schroeter, 1988; Sexton, 2000; Tostao & Chung, 2005; Tostao, Chung, & Brorsen, 2011). However, market characteristics such as cattle cycle and seasonality can also potentially affect the degree of market power in this industry. Cattle production ﬂuctuates unpredictably based on weather conditions and economic environment, whereas beef demand is relatively stable and predictable. The ﬂuctuation of cattle production (cattle cycle) leads to price ﬂuctuations, and these variations could inﬂuence the bargaining position of producers and packers in the cattle procurement market (Crespi, Xia, & Jones, 2010). Therefore, cattle cycle and seasonality could affect market power in the cattle procurement market. A few studies examine the impact of cattle supply and cycle on the packer behavior in the cattle procurement market. For example, Stiegert, Azzam, and Brorsen (1993) assess impacts of anticipated and unanticipated cattle supply on the departure of fed cattle prices from cat- tle’s marginal value product. The anticipated cattle supply is speciﬁed by cattle on feed, cattle placements, and seasonal dummy variables. Crespi, Xia, and Jones (2010) also consider the relationship between potential market power and cattle cycle in cattle purchases. This study provides a conceptual framework of dynamic cattle supply and demand for feeders and pack- ers, respectively, where the degree of market power is determined by the number of packers. Although both studies show the importance of cattle supply and cycle in examining packer’s behavior in cattle procurement, these studies are based on a quantity competition framework with no regional analysis. Agribusiness, Vol. 00 (0) 1–14 (2016) C  2016 Wiley Periodicals, Inc. Published online in Wiley Online Library (wileyonlinelibrary.com/journal/agr). DOI: 10.1002/agr.21490 1