Postprint version. Published in American Journal of Agricultural Economics, Volume 79, Issue 2, May 1, 1997, pages 524-531. Copyright © 1997 Agricultural & Applied Economics Association. Published by Blackwell. The definitive version is available at http://www.jstor.org/stable/1244149.
NOTE: At the time of publication, the author Stephen Hamilton was not yet affiliated with Cal Poly.
In this paper we examine the marginal impact of changing farm supply on the market structure of the downstream food processing sector. We develop a theoretical model that allows for cost differences among processors and endogenizes downstream entry and exit. Comparative statics results are consistent with several well-established trends in the food processing sector. In particular, the analysis demonstrates that increasing concentration in the food processing sector is consistent with decreasing market power. Indeed, we find that when the farm supply curve shifts outward, an increase in concentration can only occur when there is a decrease in market power.