DP17785 Input and Output Market Power with Non-neutral Productivity: Livestock and Labor in Meatpacking.
Market power can be present in both a firm’s product and input markets, allowing for supranormal profits to the detriment of social welfare. However, identification is challenging because it requires unbiased estimates of production elasticities under the interwoven presence of monopsony power and non-neutral productivity. We propose a way to measure market power in the product market and several input markets of a firm that is robust to biased technological change. The inference can be checked by assessing how much each market contributes to the gross profits of the firm. We illustrate the method with data from the highly concentrated US meatpacking industry, which is often suspected of exploiting livestock farmers and immigrant workers. We conclude that the prices in the product and livestock input markets are competitive, but also that production workers receive only 60% of the value of their marginal productivity.
