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Published online by Cambridge University Press: 07 November 2014
Among persons unfamiliar with agricultural markets, it is not uncommonly assumed that here, if in no other area of economic activity, prices are established through the free play of competitive forces in an environment at least approaching the perfect market. To be sure, agricultural production is carried on by atomistic units and, at least prior to the inauguration of government crop-control programmes, there have been few limitations upon competition among farmers for the use of productive resources. And, in the processing and distribution of farm products, the illusion of pure competition has been strengthened by the relatively large number of firms and the fact that they frequently do not have direct control of the short-run supply of their raw material.
But those who are familiar with actual conditions in these markets know how unrealistic it may be to proceed on the assumption of pure competition. It has become increasingly evident to the agricultural economist, for example, that typically—even where the number of processing firms is large—a few firms dominate a given industry, often aided and abetted by active trade associations. Again, in the local market, where assembling and processing is done by a relatively large number of small independent agencies, differentiation of services—including that of location—may lead to non-aggressive buying policies. Finally, the fact that processor-distributors do not control the short-run supply of farm products does not preclude monopoly elements. For imperfect competition in a processing-distributing industry implies control of the supply of processing-distributing services, hence the price of these services (the margin or spread).
Journal Article No. J-1193 of the Iowa Agricultural Experiment Station, Ames, Iowa, Project 595.
Also a lecture delivered at the University of Toronto, March 2, 1944. While the material here presented has already been published by the author in various channels elsewhere, it is summarized here in convenient form for the Canadian reader. Papers which have appeared in the Journal of Farm Economics, Journal of Political Economy, Quarterly Journal of Economics, and Research Bulletin series of the Iowa Agricultural Experiment Station have been drawn on freely and are referred to at appropriate places for the reader desirous of additional details. Furthermore, most of this material has been brought together in the author's recent book, Imperfect Competition Within Agricultural Industries (Ames, Iowa, Iowa State College Press, 1941), where general economic analysis has been adapted to the peculiar problems faced by the specialist in agricultural marketing and prices. Page references to this book (hereinafter abbreviated as Imperfect Competition) may be helpful to those who are interested in the theoretical tools applied here.
1 See the author's article, “Market Sharing in the Packing Industry” (Journal of Farm Economics, vol. XXII, 02, 1940, pp. 225–40)Google Scholar; and his Imperfect Competition, pp. 3-6 and 120-30.
2 Clemen, R. A., American Livestock and Meat Industry (New York, Ronald Press, 1924), p. 766.Google Scholar
3 United States House of Representatives, Committee on Agriculture, 66th Congress, 2nd Session, Hearings on Meat-Packer Legislation, 1920, p. 2089.Google Scholar Note how accurately this differentiates a dominant buyer from a small competitive buyer.
4 Ibid., p. 1179. Statement of Dr. L. D. H. Weld.
5 Putnam, George E., Supplying Britain's Meat (London, 1923), pp. 124–6Google Scholar (italics added). Cf. Hanson, Simon G., Argentine Meat and the British Market (Stanford University Press, 1938).Google Scholar
6 Alspaugh, Harold Paul, Marketing of Meats and Meat Products (Ohio State University, unpublished Ph.D. thesis, 1936), pp. 142–3.Google Scholar
7 Federal Trade Commission, Report on the Tobacco Industry (Washington, 1921), p. 67.Google Scholar
8 Ibid., p. 152.
9 Nicholls, W. H., Post-War Developments in the Marketing of Cheese (Iowa Agricultural Experiment Station, Research Bulletin 261 (1939)Google Scholar; “Post-War Concentration in the Cheese Industry” (Journal of Political Economy, vol. XLVII, 12, 1939, pp. 823–45Google Scholar); and Imperfect Competition, pp. 116-20.
10 Federal Trade Commission, Report on Sales and Distribution of Milk and Milk Products, New York Sales Area (Washington, 1936), pp. 66–7 (italics added).Google Scholar
11 Federal Trade Commission, Report on Sales and Distribution of Milk and Milk Products, Chicago Sales Area (Washington, 1936), p. 97 (italics added).Google Scholar
12 Nicholls, , Imperfect Competition, chap, VIII, especially pp. 132-7, and 142–4.Google Scholar
13 Cf. Hoffman, A. C., Large Scale Organization in the Food Industries (U.S. Temporary National Economic Committee, Monograph no. 35, Washington, 1941), p. 83.Google Scholar
14 Hearings on Meat-Packer Legislation, 1920, p. 2589 (italics added).Google Scholar
15 Nicholls, , “Market Sharing,” pp. 231-3, 237 Google Scholar; and Imperfect Competition, pp. 144-8, 220-4, 240-6, and 260-5.
16 U.S. Senate, Committee on Agriculture and Forestry, 65th Congress, 3rd Session, Hearings on S. 5305, Part 1, 1919, p. 630.Google Scholar
17 Cox, Reavis, Competition in the American Tobacco Industry (New York, Columbia University Press, 1933), pp. 179, 186.Google Scholar Cf. Federal Trade Commission, Report on the Agricultural Income Inquiry, Part 1 (Washington, 1938)Google Scholar, various sections on tobacco industry, especially pp. 269-73 and 444-6.
18 Nicholls, , Imperfect Competition, chaps. X and XI, especially pp. 166-7, 178-80, 181-8, and 192–6.Google Scholar
19 Cassels, John M., A Study of Fluid Milk Prices (Cambridge, Harvard University Press, 1934), especially Table VII, p. 171.Google Scholar
20 U.S. Supreme Court, October, term, 1931, U.S. v. Swift and Co., et al., Brief for the United States, Government Exhibition 94, pp. 73-5.
21 Nicholls, , Imperfect Competition, pp. 181-8, 246–50Google Scholar, and chaps, xvi-xvil, especially pp. 266-73, 279-81, 287-9, and 299-303.
22 From an unpublished manuscript by Albert Mighell.
23 See the author's note, “Some Economic Aspects of University Patents” (Journal of Farm Economics, vol. XXI, 05, 1939, pp. 494–8).Google Scholar
24 Nicholls, , Imperfect Competitioni, chaps, XII-XV, especially pp. 198-201 and 232–6.Google Scholar
25 For a discussion of some of the major limitations of the theory of imperfect competition, especially as applied to the agricultural industries, see Nicholls, , Imperfect Competition, pp. 63-6, 144-7, 149-66, 260-6, and 348–56.Google Scholar
26 For a review of recent important changes in judicial attitudes toward public regulation of business in the United States, see the author's two recent articles, “Constitutional Aspects of Public Regulation of Business Price Policies” (Journal of Farm Economics, vol. XXV, 08, 1943, pp. 560–82)Google Scholar; and “Federal Regulatory Commissions and the Courts” (American Economic Review, vol. XXXIV, 03, 1944, pp. 56–75).Google Scholar
27 See the author's article, “Social Biases and Recent Theories of Competition” (Quarterly Journal of Economics, vol. LVIII, 11, 1943, pp. 1–26).Google Scholar