The tendency toward oligopoly in the meat packing industry

Rising concentration levels in the meat packing industry have triggered alarm among livestock producers seeking markets for their cattle. Similar high levels of concentration prevailed at the turn of the century when the "Big Four," Armour, Swift, Cudahy, and Wilson, dominated meat packing. The Big Four built their market power based on the innovation of the refrigerated rail car, supplanting shipments of live animals. Poor markets led the Big Four to create a vertically integrated system of livestock procurement, slaughter, warehousing, and merchandising, tied together by rail transport. During the 20th century, the development of local markets and refrigerated trucks cast the Big Four into the Neoclassical role of declining dominant firms. In the mid-1960s, entrants expanded the concept of the refrigerated rail car into "boxed beef," giving them the basis for lowering price-cost margins to capture market share from other packers. This process, triggered by a revolutionary innovation, restructures competitive industries into oligopolies, according to political economist Josef Steindl. Time series analysis explaining concentration levels and price-cost margins over the 1950-1987 period supports the hypothesis that the industry went through both a declining dominant firm phase and a subsequent concentrating phase based on decreasing price-cost margins. The concentrating stage of the meatpacking industry could culminate in another phase of declining dominant firms, largely due to the industry's persistent overcapacity, which Steindl thought would be eliminated during concentration. Overcapacity has led the current oligopolists, the "Big Three," IBP, ConAgra, and Cargill, to horizontally and vertically integrate, paralleling the Big Four. The interplay between vertical integration and the growth and decline of markets is thus a crucial dimension underlying shifts in industry structure, a factor not considered by Steindl. Consequently, industries may be vulnerable to recurrent phases of concentration, deconcentration, and reconcentration, rather than culminating in the entrenched and stagnant oligopolistic state Steindl termed "mature capitalism.".