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https://doi.org/10.1177/0003603X221149365 The Antitrust Bulletin 2023, Vol. 68(1) 88 The Author(s) 2023 Article reuse guidelines: sagepub.com/journals-permissions DOI: 10.1177/0003603X221149365 journals.sagepub.com/home/abx Article Meatpackers Feed on Fed CattleBrianna L. Alderman*Abstract There are numerous accusations of collusion in protein markets throughout the United States. The cattle market is no exception. The four major meatpackers stand accused of acting in concert to lower the quantity of cattle purchased in the cash market for fed cattle. The plaintiffs in these cases allege that these meatpackers have purposefully depressed the price they pay to various cattle ranchers and feedlot operators. This article explores the allegations brought forth in one of these complaints, as well as the economic consequences resulting from the formation of a cartel in this market if a collusive agreement truly exists. Keywords monopsony, antitrust, cartel, price fixingI. IntroductionThe meatpacking industry is no stranger to accusations of collusion and anticompetitive behavior.1 Several articles throughout the last 100 years have discussed the cases presented by U.S. antitrust agencies and their leadership.2 These accusations were prevalent in the twentieth century, and it does not appear that these accusations are disappearing any time soon. In the past few years, various cattle ranchers and feedlot operators, that is, fed cattle suppliers, have filed antitrust suits against the four major meatpackers: Cargill, JBS, National Beef, and Tyson.3 They believe that these meatpackers have engaged in collusive monopsony, that is, the Big Four meatpackers have agreed among themselves to depress fed cattle prices. These monopsonistic abuses, if true, affect ranchers and beef consumers alike. *McNair Scholar, Department of Economics, University of Florida, Gainesville, FL, USA Corresponding Author: Brianna L. Alderman, McNair Scholar, Department of Economics, University of Florida, Gainesville, FL 32611-7140, USA. Email: brianna.alderman@ufl.edu 1149365 ABX XX X 10.1177/0003603X221149365The Antitrust BulletinAlderman research-article 2023 1. For example, see In re Beef Industry Antitrust Litigation, 600 F.2d 1148 (5th Cir. 1979). 2. For discussions of past investigations and litigation, see Robert M. Aduddell and Louis P. Cain, The Consent Decree in the Meatpacking Industry, 1920-1956, 55 BUS. HIST. REV . 359 (1981); G. O. Virtue, The Meat-Packing Investigation, 34 Q J ECON , 626 (1920); and Jon K. Lauck, Competition in the Grain Belt Meatpacking Sector after World War II, 57 ANN IOW A 135 (1998). 3. Cargill refers to Cargill Incorporated and Cargill Meat Solutions Corporation. JBS refers to JBS S.A., JBS USA Food Company, Swift Beef Company, and JBS Packerland, Inc. Tyson collectively represents Tyson Foods, Inc. and Tyson Fresh Meats, Inc.
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Alderman 89 Plaintiffs have presented evidence suggesting that the Big Four firms have continued to restrict their slaughter volumes since 2015, while independent packers have steadily expanded their slaughter counts during the same time frame.4 Their evidence also suggests that the price of cattle has fallen and remained low since 2015. During the alleged cartel period, the Plaintiffs assert that the price per cwt of cattle fell well below the expected price, even reaching as low as two-thirds of the expected price.5 During the same period, the price of beef has increased in the output market, leading to increased profit margins for meatpackers.6Although it is known that the exercise of monopsony power reduces the price of an input, a common misconception is that these lower prices are passed on to consumers.7 While the exercise of monopsony power does lead to lower prices for inputs, it also leads to reduced purchases. With fewer inputs, the monopsonist’s output necessarily falls. As a result, the price to consumers rises and they are worse off. In the end, those with monopsony power benefit from its exercise, while input suppliers and downstream consumers are injured.8Therefore, any impact on prices in the cattle market is likely to be of public concern. Legislation intended to police the behavior of the Big Four meatpackers, as well as assist ranchers and feedlot operators are currently being discussed by policymakers on both sides of the aisle, including Cory Booker, Chuck Grassley, Deb Fischer, and Elizabeth Warren.9 Antitrust enforcement agencies are also investigating the actions of the major meatpackers, hoping to discover whether the reduction in cattle prices is the intentional result of some nefarious scheme or simply market forces at play.10This article provides an economic analysis of the claims put forward by some of the cattle ranchers, feedlot operators, and their representative parties in one of the current antitrust lawsuits. Although there is much debate among lawyers, antitrust economists, and agricultural economists about the current 4. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at Figure 4. I have relied on this complaint and the sources cited therein for this and any further information specific to the cattle industry, as cited below. These facts must be proven, and not all of the facts presented by the Complaint have been independently verified. 5. The Plaintiffs claimed that the price of cattle was expected to be $150 per cwt after 2015 for multiple years, but dropped to as low as $98 per cwt during the period of alleged collusion. Id. at and . It is unclear how the Plaintiffs calculated an expected price of $150 per cwt. For ease of exposition, I have taken this number as given throughout this article, but have not proven it to be an accurate estimate. 6. Id. at Figure 6. This article’s general focus will remain on the cattle market. For an in-depth examination of allegations of collusion in the beef market, see Roger D. Blair, The Consumers’ Beef about Beef Prices, 68 ANTIT R UST BULL (forthcoming 2023). 7. For an example of such a misconception, see Debbie Feinstein and Albert Feng, Buyer Power: Is Monopsony the New Monopoly, 33 ANTITRUST 12 (2019) at 13: “But suppose the monopsonist is able to receive lower prices, thereby lowering its costs. In that situation, consumers could benefit.†8. Even in a competitive downstream market, there is a welfare loss due to increased prices, but perhaps not in the long-run depending on the long-run supply conditions. See Roger G. Noll, Buyer Power and Economic Policy, 72 ANTITRUST LA W J , 589 (2005) at 598. 9. To learn more about the Cattle Price Discovery and Transparency Act (S. 4030), see https://www.bloomberglaw.com/product /blaw/bloomberglawnews/antitrust/XAVUEE98000000?bc=W1siU2VhcmNoICYgQnJvd3NlIiwiaHR0cHM6Ly93d 3cuYmxvb21iZXJnbGF3LmNvbS9wcm9kdWN0L2JsYXcvc2VhcmNoL3Jlc3VsdHMvYzI2M2RiM2M0NDRhNj YxZGYzODU2MDA0YTI2ZGE4ZGEiXV01387c531157a3b561ee5608c279202b14f04441&bna_news_ filter=antitrust&criteria_id=c263db3c444a661df3856004a26da8da&search32=ngizb88UBrozBezXhurJwQ%3D%3DtQR kUVnxQmlApelg9G9nK152Ey7qU7aAjCY7ayxoW8HjgXl5A3730KSCz0cCFzkB15vw59P4MSIbtUAz-tJXybyunJBoT dB3gbzWRhi0yJq4MbRW4rWLTKNC5UdIKTnw. Also, see https://www.reuters.com/markets/commodities/us-senatorspropose-ftc-investigate-beef-price-fixing-2022-05-19/, and https://www.bloomberglaw.com/bloomberglawnews/antitrust/ XBJKQH8K000000?bwid=00000181-8bb5-d491-afcd-cbb708f40001&cti=LSCH&emc=batnw_nl%3A5&et=NEWSLE TTER&isAlert=false&item=read-text&qid=7312380®ion=digest&source=newsletter&uc=1320027841&udvType=Al ert&usertype=External. 10. See https://www.bloomberglaw.com/product/blaw/bloomberglawnews/true/X18JV9NC000000?bna_news_filter=true#jcite.
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90 The Antitrust Bulletin 68(1) state of the cattle market and the reasons behind the fluctuations in cattle prices,11 an economic analysis of the market structure and the incentives for collusion in this market is still valuable. While this article’s analysis stems from a complaint brought by fed cattle suppliers, it is not intended to prove whether the claims presented by the plaintiffs are based in fact—I leave that to the judicial system. In this article’s next section, I discuss the general fed cattle market structure. In section III, I explore various aspects of a specific complaint brought forth by plaintiffs against the major meatpackers. In section IV, I examine some of the economic consequences of collusion in the fed cattle market if the allegations are true. Section V discusses damage calculations and antitrust standing in this market, and I close with some concluding remarks in section VI.II. The Market for Fed CattleThe cattle market is a multi-billion-dollar industry, and it is one of the largest agricultural industries in the United States. The fed cattle market takes up a large portion of the cattle industry. With over 24.5 million fed cattle sold to and slaughtered by meatpackers across the country,12 it is an enormous industry with multiple stages.13First, bulls or artificial insemination programs are used to produce calves in the cow-calf stage of development. While some calves are kept for future breeding, most are raised until they reach approximately 300 to 500 pounds. These calves are then sold to stockers, who feed the steers and heifers until they reach 600 to 800 pounds. These stages in the supply chain are extremely disaggregated—there are over 640,000 cattle ranchers in the United States.14After reaching 600 to 800 pounds, the cattle are usually sold to one of over 13,000 feedlot operators in the United States who raise the cattle on special diets until they reach 950 to 1,300 pounds.15 These feedlot operators sell the fully grown cattle to meatpacking firms who slaughter the cattle to produce cuts of meat including boxed beef. These cuts are sold to downstream consumers including grocery stores, restaurants, and other institutions. The process of raising the cattle to the ideal slaughtering size takes approximately fifteen to twenty-four months in total. In some cases, ranchers raise the cattle from birth to slaughter, and sell directly to meatpackers. In others, the ranchers and stocker operators pay a custom fee per head to rent a space in a feedlot for the rancher’s cattle. Here, the rancher still sells directly to the meatpackers once the cattle reach the optimal size. In most cases, however, the cattle are sold through the supply chain until the feedlot operators sell the cattle directly to the various meatpackers for slaughter. 11. Some agricultural economists do not view the market power shared among the four major meat packers as a concern. For an example, see Derrell S. Peel, David Anderson, John Anderson, Christopher Bastian, Scott Brown, Stephen R. Koontz, and Josh Maples, Fed Cattle Price Discovery Issues and Considerations, Circular E-1053, OKLAHOMA COOPERA TIVE EXTENSION SER VICE (2020), https://extension.okstate.edu/fact-sheets/print-publications/e/fed-cattle-price-discovery-issues-and-considerations-e-,1053.pdf: “Impacts of concentrated industry structure are largely separate from price discovery issues. Research shows market power in fed cattle markets has small negative impacts on prices that are off-set by substantially larger cost efficiencies to the benefit of cattle producers and beef consumers.†On the other hand, some lawyers seem to disagree with these claims. For an example, see Peter C. Carstensen, Dr. Pangloss as an Agricultural Economist: The Analytic Failures of The U.S. Beef Supply Chain: Issues and Challenges, Univ. of Wisconsin Legal Studies Research Paper No. 1741 (2022), doi:10.2139/ssrn.4049230. While the Defendants and Plaintiffs gather evidence in support of their respective arguments, some economists have begun to analyze price data within the market to form their own conclusions. See Francisco Garrido, Minji Kim, Nathan H. Miller, and Matthew C. Weinberg, Buyer Power in the Beef Packing Industry: An Update on Research in Progress (2022), http://www.nathanhmiller.org/cattlemarkets.pdf. 12. The 2017 Census of Agriculture, United States Summary and State Data, AC-17-A-51 (2019) at Table 13. 13. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at Figure 7. 14. Supra note 9 at Table 48. 15. Id.
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Alderman 91 While there are just over 700 meatpackers in the United States,16 there are four firms that dominate the market—Cargill, JBS, National Beef, and Tyson. These meatpackers have been accused of colluding to reduce the amount of fed cattle purchased in the cash market and thereby suppress the price of cattle in the market.17Fed cattle are sold to meatpackers through the cash (or spot) market or alternative marketing arrangements (AMAs)—most notably, the formula contract and the forward contract.18 As of 2019, approximately 95 percent of fed cattle are sold through the cash market, formula contracts, and forward contracts.19The formula and forward contract markets enable fed cattle suppliers and meatpackers to agree on herd sizes and a formula for prices ahead of time. According to the Plaintiffs, these types of contracts stipulate that the price for the fed cattle being sold to the meatpacker will be determined by the state of the cattle market and prices of cattle at the time that the cattle are being delivered to the meatpackers.20 Of course, the price can depend on other variables such as quality of the cattle delivered, the quality of the beef resulting from the cattle that is sold, or breeding requirements. There is one major difference presented by the Plaintiffs regarding these two types of contracts. They claim that formula contracts base their prices on reported prices paid in the cash market during the week of the transaction, while forward contracts “incorporate Live Cattle futures prices, which, in turn, are directly impacted by reported cash cattle prices.â€21 With both types of contracts, the Plaintiffs argue that the prices paid in the cash market greatly influence the prices paid by meatpackers in their contracts.22The Defendants, however, deny these claims.23 While many concede to the use of AMAs for the purchase of cattle, as well as a relationship between the price paid by the packers and the price in the cash market for cattle during that week, they deny the accusation that they purposefully exploited this relationship. There have even been some empirical claims that AMAs are efficiency enhancing and result in higher prices to feeders.24 16. This estimate was provided by Dr. Derrell S. Peel, Professor of Agricultural Economics and the Extension Livestock Marketing Specialist for Oklahoma State University. 17. The prevailing price clears the market where demand and supply coincide. If demand declines systematically, the marketclearing price declines. This will be examined further in Section IV. 18. The other major AMA is the negotiated grid. Over the past 15 years, the market has shifted away from the cash market in favor of AMAs. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/ HB) at Figure 8. 19. Approximately 20 to 25 percent of fed cattle are procured through the cash market, 60 to 65 percent of cattle are purchased through formula contracts, and 10 to 15 percent are bought through forward contracts. The negotiated grid makes up the remaining 5 percent of sales. Id. 20. Id. at . 21. Id. 22. Some agricultural economists disagree with these claims. See Clement E. Ward, Stephen R. Koontz, Tracy L. Dowty, James N. Trapp, and Derrell S. Peel, Marketing Agreement Impacts in an Experimental Market for Fed Cattle, 81 AM J AGRIC ECON 347 (1999). 23. To see Tyson’s answer to the third amended complaint, see Defendants’ Answer and Affirmative Defenses to Plaintiffs’ Third Consolidated Amended Class Action Complaint, In Re Cattle and Beef Litigation, Case 0:20-cv-01319-JRT-JFD Doc. 322. For Cargill’s response, see Defendants Cargill, Incorporated and Cargill Meat Solutions Corporation’s Answer and Affirmative Defenses to Plaintiffs Third Consolidated Amended Complaint, In Re Cattle and Beef Litigation, CASE 0:20-cv-01319-JRT-JFD Doc. 318. JBS’ response can be found at Answer to Third Consolidated Amended Class Action Complaint by JBS USA Food Company, Swift Beef Company, JBS Packerland, Inc., and JBS S.A., In Re Cattle and Beef Litigation, CASE 0:20-cv-01319-JRT-JFD Doc. 326. Last, National Beef’s answer is found at Defendant National Beef Packing Company, LLC’s Answer and Affirmative Defenses to Plaintiffs’ Third Consolidated Amended Class Action Complaint, In Re Cattle and Beef Litigation, CASE 0:20-cv-01319-JRT-JFD Doc. 315. 24. In Pickett v. Tyson Fresh Meats, Inc., 420 F.3d 1272 (11th Cir. 2005), the 11th circuit approved all AMAs, even if they harmed feeders, as long as there is a plausible claim that they have some efficiency justification. The Supreme Court denied an appeal “that asked for reinstatement of the case’s 2004 district court jury decision. The jury originally found that Tyson’s . . . procurement methods damaged nationwide cash cattle prices over an eight-year period.†See https://www.beefmagazine.com/cowcalfweekly/US-Supreme-Court.
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92 The Antitrust Bulletin 68(1) The structure of the market for fed cattle creates a more suitable environment for collusion. The fed cattle industry is highly concentrated on the buyer side, with four major firms accounting for approximately 85 percent of fed cattle purchases.25 While the remaining firms purchase the rest of the supply, no other packer individually accounts for more than four percent of purchases within the market.26The inelasticity of the short-term supply of cattle and the demand for beef are characteristics that render the market conducive to collusion as well.27 Evidence presented by the Plaintiffs suggests that the demand for beef remains strong and is still growing.28 However, due to the short-term inelasticity of supply in the market for fed cattle, decreasing the slaughter count or waiting to purchase cattle causes the cattle to lose value. Thus, fed cattle suppliers have an incentive to reduce the slaughter count to increase their profits.29 However, profit incentives to collude do not imply nor prove that a collusive agreement truly exists. It is notable that there are numerous opportunities for the Packing Defendants to meet at trade association meetings, including the National Cattlemen’s Beef Association, the U.S. Meat Export Federation, and others.30 Along with annual meetings, there are also regularly scheduled meetings and phone calls between one another’s employees to discuss acquisitions and other general business dealings. These various forms of communication provide an ongoing opportunity to observe the prices offered by other meatpackers, as well as the quantity of cattle being purchased. These opportunities also create effective ways to monitor and police co-conspirators. The Defendants concede that members of their firms attended these meetings but deny any awareness of wrongdoing while sponsoring the attendance of their staff.31 These meetings are required for regular participation in the industry. The Packing Defendants also had the potential to benefit from high barriers to entry.32 Entry barriers are needed to protect the majors from entry in response to monopsony profit. As the profits remain positive and continue to increase in this market, the incentive for other meatpacking firms to enter the market rises.33 However, due to high sunk costs when building a packing plant, that is, large monetary investments, obtaining permits, and multiple years of planning, negotiating, and building, it is difficult for new firms to enter the market.34 Thus, as the profits remain positive, the resulting monopsony profits remain in the hands of the four major packers. These entry barriers, however, were present when the Defendants entered the industry as well. While they may benefit from their existence, the existence of high barriers to entry does not imply guilt.35The similar cost structures of the Defendants, as well as their ability to oversee each other’s price and production decisions, make the market vulnerable to collusion.36 Because of their similar cost structures, the members of a potential cartel would have little room to adjust their prices to steal 25. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at . 26. Id. 27. Id. at . 28. Id. at . This evidence is also suggested by Plaintiffs in the ongoing beef litigation. See In re Cattle and Beef Antitrust Litigation, Case No. 0:20-cv-1319 (JRT/HB). 29. As with any cartel, there is an incentive to cheat. As a result, the cartel must find a way to punish cheaters. See Ian Ayers, How Cartels Punish: A Structural Theory of Self-Enforcing Collusion, 87 COLUMBIA LA W REV 295 (1987). 30. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at . 31. Supra note at 17. 32. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at . 33. For example, plants are being built in Nebraska and South Dakota, as shown in https://www.bloomberg.com/news/articles /2022-06-06/plan-to-combat-us-meatpacking-concentration-faces-its-own-hurdles and https://www.wsj.com/articles/ cattle-ranchers-meatpackers-beef-price-inflation-11647874135. 34. A state-of-the-art plant can cost anywhere from $250 million to $350 million and take at least two years to build. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at . 35. See GEORGE J. STIGLER , THE ORGANIZA TION OF INDUSTR Y 67 ( RICHARD D. IR WIN , 1968). 36. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at .
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Alderman 93 business from the other cartel members. Through both formal and informal price reporting, the cartel members would be able to observe their co-conspirators regularly and monitor for signs of cheating. All these elements of the market structure make it conducive to collusion, and many ranchers and feedlot operators have brought forth such allegations. However, the potential for collusion does not prove the majors are guilty of anything and is circumstantial at best. It is the job of these plaintiffs to prove by the preponderance of the evidence that the majors are guilty of collusion. In the next section, I will begin to discuss some of the more specific allegations presented by some fed cattle suppliers.III. Allegations of Collusion in the Fed Cattle MarketPolicymakers, ranchers, and antitrust agencies have expressed some concerns over the existence of a collusive agreement among the Big Four meatpacking firms. While policymakers and antitrust agencies continue to investigate the actions of these meatpackers, various fed cattle suppliers and their interest groups have already filed antitrust suits. The following discussion of allegations and alleged collusive mechanisms utilized by the Packing Defendants comes from a specific complaint, as well as the Defendant’s answers. Thus, any econometric result that is referenced is a result provided by those Plaintiffs. In late 2020, Plaintiffs representing the interests of fed cattle ranchers and feedlot operators filed a class action suit in the District of Minnesota against the four major meatpackers—Cargill, JBS, National Beef, and Tyson.37 They specifically filed on behalf of two classes: the “Producer Class†and “Exchange Class.†The Producer Class includes all direct suppliers of even one steer or heifer for slaughter to the Defendants other than those suppliers who sold on a “cost-plus basis.â€38 The Exchange Class includes everyone who “transacted in Live Cattle futures and/or options traded on the CME [Chicago Mercantile Exchange] or another U.S. exchange during the Class Period.â€39In the Complaint, the major points of interest are “whether [the] Packing Defendants engaged in a combination and conspiracy among themselves to fix, depress, suppress, and/or stabilize the prices of fed cattle purchased in the United Statesâ€40; “whether [the] Packing defendants engaged in a combination and conspiracy among themselves to allocate the market for the purchase of fed cattle offered for sale in the United Statesâ€41; and “whether [the] Packing Defendants’ alleged conspiracy violated federal antitrust laws.â€42The meatpackers have been accused of reducing their cash cattle purchases to depress the prices paid for cattle throughout the market. The Plaintiffs argue that “[b]y reducing their purchases of cash cattle, Tyson, JBS, Cargill, and National Beef sought to reduce the price of all [fed] cattle by utilizing the link between cash cattle prices and the prices paid under formula and forward contracts.â€43 The Defendants deny that this is true, and have each responded with their own answer to the complaint.44Because the formula and forward contract prices are a function of the price paid in the cash market, there is an incentive to control the cash market price. The Plaintiffs allege that the cash market price 37. The Plaintiffs filed under many statutes including of the Sherman Act, and of the Clayton Act, and of the Packers and Stockyards Act, and (a), (c), and of the Commodity Exchange Act. Throughout this article, I refer to the four accused firms as the Defendants or the Packing Defendants. Id. at 71. 38. A “cost-plus basis,†as defined in the Complaint, “means an agreement to sell fed cattle at a price determined by the producers’ costs of production without regard to prevailing cash cattle prices.†Id. at . 39. Id. at . 40. Id. at (a). 41. Id. at (b). 42. Id. at (e). 43. Id. at . This is a major point that must be proven by the Plaintiffs. If convincing evidence is not provided to support this claim, the case will fall apart. 44. Supra note at 23.
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94 The Antitrust Bulletin 68(1) determines the price of fed cattle for approximately 71 percent of steers and heifers bought through contracts.45 As a result, the reward for fixing the price of about 25 percent of cattle purchased is control of the price for over 95 percent of the market. The Defendants, however, all claim that they were ignorant of this result. They admit to increased use of AMAs and that price paid through these AMAs are related to the prices paid in the cash market, but deny any intent to manipulate this feature of the market.46If the price paid in the cattle market does control 95 percent of the market, this would be an extreme incentive for the Defendants to form and maintain a collusive agreement. After the hypothetical cartel formation, if one member of the cartel were to cheat and offer a higher price, the prices paid by that same meatpacker in their formula and forward contracts would also increase. Thus, to maintain a suppressed price for approximately 95 percent of the cattle purchased in the market, the majors each have a selfenforcing policing mechanism to try and maintain suppressed prices of cattle in the cash market. The Defendants are accused of exploiting the general fed cattle market structure to suppress the price paid for fed cattle. I will now examine some of the more specific mechanisms allegedly utilized by the meatpackers in detail.A. Queuing Agreements47As mentioned above, there has been a large shift in recent history from use of the cash market to contract purchases. Because of the transition away from the cash market, the contract market has become more valuable to both suppliers and purchasers of beef. The Plaintiffs have alleged multiple collusive mechanisms employed by the Defendants relating to contracts. One of those mechanisms presented by the Plaintiffs is known as the “queuing convention.†This convention is a contractual requirement that any supplier of cattle offer their cattle to the contracted meatpacker first. Suppliers of fed cattle are signing agreements with the meatpackers that allegedly require that the suppliers “relinquish their current offer in order to seek higher offers, thus reducing their incentives to pass on the initial offer in the hope of generating better offers.â€48 To discuss how a queuing convention works in theory, let’s begin with a hypothetical scenario in which a rancher has a queuing convention within a contract with Tyson. To begin with, Tyson offers (or bids) a price of $130 per cwt. In the simplest setting, the rancher could accept the initial bid and sell their cattle to Tyson. However, the rancher could refuse and reach out to another meatpacker. If the rancher chooses this path, they cannot accept an offer at that same price of $130 per cwt from any other meatpacker during the first round of bidding. The rancher must make the second meatpacker willing to offer a bid, for example, National Beef, aware of the original bid of $130 per cwt. National Beef then has the choice of offering at least $131 per cwt for the rancher’s cattle.49 If National Beef is willing to do so, the rancher may accept the bid and sell their cattle for that week. The rancher may also decline National Beef’s bid if they are still unhappy with the offered price. However, any offer the rancher accepts after must be at least $1 per cwt higher than the preceding bid.50 45. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at . 46. For an example of such a denial, see Defendants Cargill, Incorporated and Cargill Meat Solutions Corporation’s Answer and Affirmative Defenses to Plaintiffs Third Consolidated Amended Complaint, In Re Cattle and Beef Litigation, CASE 0:20-cv-01319-JRT-JFD Doc. 318 at . 47. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at . 48. Id. at . 49. This is yet another way to police the behavior of cartel members. The ranchers are reporting bids to other meatpackers within the alleged cartel, keeping the members informed of the prices being offered by their alleged co-conspirators. 50. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at Footnote 66.
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Alderman 95 If, however, all other meatpackers are only willing to bid $130 per cwt, the rancher must decide whether to accept this offer at all or wait until the next week.51 If the rancher is willing to accept a price of $130 per cwt, the rancher must return to the original bidder, Tyson, and offer that price to that bidder first. If Tyson declines, the rancher can offer that same price to the next meatpacker in the queue— National Beef. If JBS is also willing to pay a price of $130 per cwt but its bid was placed after National Beef’s, the rancher would still be required to offer that price to National Beef first. This is because National Beef was before JBS in the queue at that price. In a similar setting, if JBS was unwilling to bid higher than $131 per cwt after the rancher had declined that same offer from National Beef, the rancher would be required to give National Beef the first opportunity to purchase the cattle because National Beef was the first in the queue for the rancher’s cattle at that price.52 The rancher can only return to JBS with the price of $131 per cwt if National Beef rejects that offer. This contractual requirement establishes a right of first refusal for the meatpackers. This set up gives the packers the ability to refuse to purchase from the rancher for another week and further suppress the price of the rancher’s cattle if the packers choose to do so. If the meatpackers continue to hold out and refuse to offer higher bids throughout the week, the rancher may not be able to sell their cattle until the next week. In essence, the queuing convention is a mechanism for controlling competitive bidding by the meatpackers. Due to the perishability of the rancher’s cattle and the costs associated with maintaining the steer or heifer for another week, the rancher may have to sell their cattle at a lower price of say, $129 per cwt, during the next week. This cycle can continue until a packer eventually accepts a supplier’s offer, giving the meatpackers a mechanism for potentially reducing the price of cattle substantially over multiple weeks. Because the major firms utilize these queuing conventions within their contracts, the Plaintiffs have accused the Big Four packers of working in concert to blackball any supplier of cattle who breaks the rules of the queuing agreement. If the aforementioned rancher chooses to shop around for bids in a manner that does not follow the rules of the convention, the Plaintiffs claim that the rancher would be ostracized by all of the Defendants.53 If this is true, the rancher would lose out on 85 percent of potential purchasers for the foreseeable future, and so they are likely to follow the rules established by the convention. Thus, all four firms could work together to suppress the price of cattle in the cash market by holding out on purchasing cattle in the short-term, thereby reducing the domestic price.54These queuing conventions are similar to those agreements in the case of Professional Engineers.55 That case involved an “ethical†rule of the National Society of Professional Engineers that denied clients the ability to obtain competitive bids. One of the society’s ethical rules prevented competitive bidding by requiring that a client not be told the engineer’s fee until the contract was signed. If the client wanted to find a better price, the engineer’s offer had to be formally rejected and the client would have to begin negotiations all over again without any assurance of a better offer. At no time did the 51. It is likely that the rancher will accept the chance of a sale that week over no sale at all due to the perishability of the good being supplied. The fed cattle are “perishable†in the sense that they are of the optimal age, weight, and fat level for slaughter. If they are not sold, the cattle will yield fattier beef products which are of lower quality. 52. The rancher is not required to return to Tyson because Tyson never offered a bid of $131 per cwt. Thus, National Beef is the first in the queue at this price. 53. In re Cattle and Beef Antitrust Litigation, Case No. 0:20-cv-1319 (JRT/HB) offers a specific example of a supplier being blackballed at . 54. Arguably, each buyer, unilaterally could decide that they do not want to offer higher prices, and so the rancher is rarely or even never offered a higher bid by the packers it attempts to sell to. Finding direct proof of misconduct is the job of the Plaintiffs. It is also possible that the existence of these agreements has shifted ranchers toward other AMAs to avoid being put in this position, but determining whether that is intentional or not is also the job of the Plaintiffs. 55. National Society of Professional Engineers v. United States, 435 U.S. 679 (1978).
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96 The Antitrust Bulletin 68(1) client have an opportunity to shop an offer, so there could be no competitive bidding. The Court held that this kind of behavior was anticompetitive and, more specifically, a violation of of the Sherman Act.56 The Court found thatwhile it is not price-fixing as such, [the ethical rule] operates as an absolute ban on competitive bidding, applying with equal force to both complicated and simple projects and to both inexperienced and sophisticated customers.57If these queuing conventions employed by the major meatpackers are truly being used to exploit their position in the market for fed cattle, there is an argument to be made that the precedent defined in Professional Engineers suggests these conventions are illegal for similar reasons. Thus, suppliers and feedlot operators may be entitled to compensation for the damages they incurred.58B. Top-of-the-Market Deal59Another contractual mechanism utilized by the Defendants is known as the top-of-the-market deal. A top-of-the-market deal, also known as a bid-deal, is “a formula contract under which the packer offers to pay the producer attempting to market cattle on the cash cattle market some variant of that week’s top reported cash price, with or without a premium.â€60 Evidence provided in the Complaint suggests that these types of contracts became more common in 2015—the same year the alleged collusion began.61 The Plaintiffs claim that these contracts reduce the quantity of cattle purchased in the cash market by reducing the demand for cattle in the cash market. In response, the price of cattle sold declines. One former feedlot manager stated,There was a good chance . . . that [the supplier] would not get [their] cattle sold if [they] rejected the (top-ofthe-market) basis bid early in the week. In some cases, holding out for a cash bid would result in [the supplier] forcing the packers to raise their cash bid at the end of the week when cash cattle traded. However, if [the supplier] took this substantial risk and won, all those that didn’t take this risk and just accepted the top-of-themarket bid would not only get the higher base price that [the supplier] worked to negotiate, but they would get the additional premium offered on Mondays to take the cattle out of the cash market . . . that [the supplier] would not get. The feedlot manager that had rejected the basis bid and taken the risk to help raise the cash basis would then get pressure from owners of cattle angry that other feedlots sold cattle for . . . more than their own cattle sold for. But by accepting the top-of-the-market basis bid early in the week and taking the premium to the base market, [the supplier] added to the packer’s captive supply and helped them push the base price down across all their formula purchases. The packers realized that they bought cattle cheaper overall by offering these premiums to take cattle out of the cash market, and thus worked to get the numbers of open cash cattle, whose sale would be used to set the base of their formula purchases, as low as possible.62The Defendants may argue that these deals are beneficial for both fed cattle suppliers and purchasers of fed cattle. Meatpackers need to maintain a certain purchase level of cattle from the market and so these commitments may be a less risky way of meeting their weekly quotas. Suppliers have to sell 56. 15 U.S.C. . 57. National Society of Professional Engineers v. United States, 435 U.S. 679, 692 (1978). 58. This claim, if proven to be true, is likely to fall under the question of “the duration of the alleged conspiracy and the acts carried out by Packing Defendants in furtherance of the conspiracy,†as presented in the 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at (d). 59. Id. at . 60. Id. at Footnote 57. 61. Id. at Table 3. 62. Id. at .
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Alderman 97 specific cattle before they are no longer valuable. The Defendants could claim that the reduction of purchasable cattle in the cash market is an unintentional consequence of these deals but that the deals are not made with that purpose in mind.C. Procurement Timing63The Defendants are also accused of coordinating their cattle procurement timing. More specifically, the Plaintiffs claim that the Big Four would wait until Fridays to procure their cattle through the cash market, and this would usually be after the CME had closed. Although some purchases were made during the week, the vast majority of cash purchases were allegedly made “during the same 30to 60-minute window on Friday.â€64 If true, the suppliers of cattle lost out on a lot of their negotiating power due to this because the suppliers would rather lose out on some profit than risk being excluded from the market entirely for that week. By waiting until Friday, the Packing Defendants would have exploited the perishability, giving them the ability to lower the price that suppliers were willing to accept for their cattle. In contrast, the Plaintiffs claim that independent packers purchased cash cattle nearly every day of the week. There is an argument to be made that the major meatpackers independently waited until the end of the week to make purchases in the cash cattle market. For example, one meatpacker may find it unilaterally rational to wait until the end of the week to accept a bid through the queuing agreements to drive one supplier’s cattle price down. All of the meatpackers may even choose to utilize this method. While this may seem unrealistic, the purchase timing of the meatpackers is circumstantial evidence at best unless the Plaintiffs can present evidence that the major meatpackers intentionally coordinated their efforts.D. Geographic Manipulation65The Plaintiffs also allege that the Big Four meatpackers would temporarily withhold their participation in the fed cattle market in various regions across the United States. If this is true, by waiting to purchase cattle for multiple weeks in region A and only purchasing in region B, the price for cattle in region A would fall as fed cattle suppliers attempted to get their cattle sold. The Plaintiffs claim that once the price in region A was low enough, the meatpackers transitioned to only purchasing in region A and stopped all purchases in region B for multiple weeks. As a result, the price would fall in region B while the meatpackers exploited the lower prices of cattle in region A. This would create an incentive to continue this cycle of geographic market manipulation.66E. Import Substitution67There is also an allegation that the Defendants supplemented their domestic cattle purchases with inter national cattle from Canada while they withheld purchasing from domestic suppliers. This maintained their supplies of slaughtered beef to the appropriate levels for the packers. Shipping these cattle would be expensive and time-consuming, but it would also maintain the necessary levels of beef for the packers while reducing domestic purchases. This action, if true, would drive the price of cattle down 63. Id. at . 64. Id. at . 65. Id. at . 66. Uniform termination of buying in a region makes little sense as unilateral conduct; use of imports at costs above market prices similarly seems irrational unless collusively intended to reduce the price of domestic cattle. However, it is the job of the Plaintiffs to prove this accusation is true. 67. Id. at .
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98 The Antitrust Bulletin 68(1) domestically. The Defendants could argue, however, that the Canadian cattle they purchased was of a higher quality than the domestic beef being provided, which is why they supplemented their slaughter cattle volumes with imported beef. The price of cattle falling would be an unfortunate, but arguably not intentional, result.F. Capacity Reduction68An overall agreement among the Packing Defendants was allegedly used to exploit the monopsonistic structure of the cattle market. The Big Four firms are accused of agreeing to reduce their slaughtering capacities to depress the price paid for cattle. There were multiple reported plant closures just before and during the alleged period of collusion. Cargill closed beef packing plants in Texas and Wisconsin, National Beef closed down its California plant, and JBS kept its Idaho plant closed during the alleged cartel period. The Defendants claimed that these closures were due to low cattle availability. The Plaintiffs, however, claim that there was an increase in rancher preparations for larger herds during this period. If this is true, the majors would have been able to reduce the demand for cattle by closing down plants, furthering their ability to suppress the price of fed cattle. Deciding whether the actions listed above are anticompetitive or not is the job of a judge and jury. Regardless of the true nature of the supposed agreement and these actions, we can still examine the economic consequences of a collusive agreement in this market. This is the subject of the next section.IV. Partial Conspiracy in the Fed Cattle MarketVarious cattle ranchers and feedlot operators allege that the four major meatpackers conspired to reduce the quantity of cattle purchased to lower the price of fed cattle. Although the existence of the cartel has not been established at trial, we can apply standard economic analysis to examine the likely effects that result from the formation of a cartel in this market. Only the four major meatpackers are accused of colluding, so we will use a cartel variant of the dominant buyer model to analyze the cash market for fed cattle. For this analysis, we will assume the Packing Defendants are conspiring to control the purchase price of fed cattle in the cash market. Treating the Defendants as one firm, we will denote their consolidated demand function as Dc in Figure 1.69 All other fed cattle purchasers are assumed to be independent of the collusive agreement, so these buyers will be referred to as the fringe, with demand function Df. In the short run, there are a fixed number of steers and heifers ready for slaughter. The supply of fed cattle is insensitive to short-term changes in price, and since cattle are perishable, ranchers and feedlot operators have a powerful incentive to sell their cattle sooner rather than later.70 Consequently, we will treat the short-run supply (SRS) of cattle as perfectly inelastic. The fed cattle suppliers, however, still have a positive reservation price because there are transaction costs associated with moving and selling the herds.71 We denote this reservation price as Pr. To maximize its collective profit, the cartel will find the profit-maximizing quantity of cattle to purchase and the price it is willing to pay for this quantity, while accounting for the fringe’s demand for fed cattle. Although the fringe buyers are technically unconstrained by the agreement, the cartel 68. Id. at . 69. Although a few of the fringe meatpackers may be as efficient as the four majors, it is unlikely that very many of these packers can produce as efficiently as the majors, given that the fringe only maintains 15 percent of beef production. 70. Id. at . 71. The reservation price is the lowest price at which the cattle will be supplied, and it is quite low. It is equal to the transaction costs of transferring the cattle to a meatpacker minus the disposal costs if it fails to sell the cattle. There does not appear to be any evidence that the market price has gotten close to the reservation price.
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Alderman 99 members know the members of the fringe will act as price takers. Consequently, the fringe will operate where its demand is equal to the price set by the cartel. The cartel members know that at every price, the quantity of cattle available will equal the differ ence between the total quantity of cattle supplied in the market and the quantity purchased by the fringe. This difference is the residual supply, denoted as Sr. Once the cartel has determined its residual supply, it will maximize its own profit by purchasing that quantity that equates the meatpackers’ mar ginal expenditure (ME) and their total demand for cattle (Dc). At this quantity, the cartel will find its optimal price to be P1, and its optimal quantity to be Qc. At P1, the non-colluders will purchase Qf. This can be seen in Figure 1. In principle, the cartel could choose to offer no more than the reservation price, but that would not maximize the cartel’s profit in either the short or long run. In the short run, the reduced price would induce the fringe to expand their purchases. In the long run, the resulting unprofitability of cattle ranching would drive cattle ranchers out of business and thereby shrink supply. Regardless of what price results from profit maximization, the supply side of the market is competitively structured, so the ranchers have little to no control over the price that they receive.A. Monopsony versus CompetitionBecause the supply of fed cattle is inelastic in the short run and all the cattle are sold, the formation of a cartel would have a substantial impact on the distribution of wealth from sellers to buyers, as well as an interesting misallocation of resources. To see this, I have reproduced the demand and supply conditions of Figure 1 in Figure 2. In the absence of monopsony, the market would clear at a price of P2 where the sum of Dc and Df equals the supply. Figure 1. Collusion in the fed cattle market.
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100 The Antitrust Bulletin 68(1) While the market clears regardless of the presence of the collusive agreement, the quantities purchased by the cartel and fringe shift as the price paid by the meatpackers changes. To depress the price for fed cattle, the cartel members are accused of purposefully reducing the quantity of cattle purchased from feedlots and ranchers. The fringe buyers, unburdened by the collusive agreement, will expand their purchases at the reduced price. Thus, Qc falls to Qc while Qf expands to Qf.72 However, the total quantity sold and purchased in the market remains at Q. These economic results are broadly consistent with the evidence presented in the Complaint.73 For example, Figure 3 in the Complaint presents the average slaughter count for each of the Defendants, and an average of the slaughter counts for all independent meatpackers collectively, before and during the period of alleged collusion.74 The figure shows that the average slaughter count fell for each of the Packing Defendants during the alleged period of collusion, while the independent packers increased their slaughter counts, on average, during that same period.75 Figure 2. Competition versus collusion in the fed cattle market. 72. In the Complaint, the Plaintiffs allege that, during the cartel period, the majors continue to restrict their purchases while the fringe purchases expanded. If this is true, and this behavior continued over multiple periods, it is unclear how the cartel could maintain control over 85 percent of the purchases in the market. 73. The empirical results presented by the Plaintiffs have not been independently verified. 74. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at Figure 3. 75. While the defendants may argue that the slaughter count is decreasing in response to a decreased demand and increased supply costs, the empirical evidence is inconsistent with this. As stated earlier, the demand for beef is increasing, and the price of cattle—which is a large component of the cost function for the meatpackers—is decreasing.
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Alderman 101 These results, however, are also consistent with the argument that market share is being reallocated toward new entrants in the meatpacking industry. It is the job of the Plaintiffs to show that the net entry in the market either remained constant or declined to prove this transfer of purchasing quantities is the result of a collusive agreement.B. Welfare AnalysisGiven the inelasticity of supply, it might seem that the redistribution of wealth would amount to (P2 – P1)Q in Figure 2. But that measure fails to account for the inefficient allocation of Q between the cartel members and the non-colluders. Consequently, the redistribution is limited to the area P2acdP1 in Figure 2. In the competitive equilibrium, the cartel members purchase more of the cattle in the market and are able to use all of these cattle effectively. When they depress the price of cattle, the fringe is able to purchase more, but this is not the most efficient quantity that the fringe can support. In other words, the fringe buys too many cattle, and the cartel members buy too few. Put differently, the marginal value of another head of cattle for the cartel exceeds that for the fringe. This misallocation is what causes the social welfare loss equal to triangle abc.77 76. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at Figure 3. This figure is taken directly from the Complaint, and no alterations have been made. 77. This result may encourage the development of some public policy to attempt to rectify this loss. Figure 3.76 Average preand post-class period fed cattle slaughter—Packing Defendants versus independent packers.
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102 The Antitrust Bulletin 68(1)C. Further Consequences of CollusionAn interesting result of the collusive agreement in the input market of the beef industry actually lies in its output market prices. The Packing Defendants have an incentive to restrict the slaughter volume of cattle in concert, since they receive monopsonistic profit as a result. By restricting the quantity of cattle purchased in the market, we have shown that the price for fed cattle will be depressed. Depressing the price for cattle in the short run has long-run consequences that affect the beef market. The quantity of beef available in the short run is dependent on the long-run supply (LRS) of cattle. Although the LRS is believed to be inelastic as well, it is not perfectly inelastic since adjustments of output can be made in the long run. The SRS is determined where the price paid to ranchers and feedlot operators intersects the LRS. As the price paid for cattle falls below the competitive price, the effect in the future is a reduction in the amount of cattle sold in the fed cattle market. As we can see in Figure 4, when the price for cattle is reduced from P1 to P2, the SRS shifts to SRS, reducing the quantity of fed cattle in the market in future years from Q to Q. Thus, the restriction of cattle purchased in the input market in the present has now influenced and in fact reduced the number of cattle available for slaughter in the future, necessarily restricting the quantity of beef in the future. This restriction has an adverse impact on the output market. Figure 4. Long-run effects of collusion in the fed cattle market.Note: SRS short-run supply; LRS long-run supply.
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Alderman 103 Irrespective of the allegations of collusion in the market for beef, this cutback on the slaughter count in the input market leads to higher prices in the output market for customers of meatpackers. These customers—grocery stores, restaurants, institutions, and other direct purchasers of beef—are subject to higher prices for beef and lower available quantities than they would have absent the collusive agreement.D. Bottom LineOverall, feedlot operators, ranchers, and purchasers of beef would be victims of the formation of a collusive agreement by the major packers. Ranchers and small feedlot operators would receive lower prices and thus lower profits in the presence of the agreement. Downstream consumers of beef would also face higher prices and lower quantities of boxed beef. If these individuals are harmed by the formation of a cartel, the question becomes who has standing to sue for damages under antitrust law? If these individuals are successful in establishing liability, they will have to determine a way to calculate those damages. I address these concerns in the next section.V. Antitrust Standing and Antitrust DamagesIn of the Clayton Act,78 Congress created a private right of action for victims of antitrust violations to sue for damages. The statute states that[A]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.79The measure of antitrust damages and possibly who may sue for damages has been identified by the Supreme Court. First and foremost, the evidence must strongly support the allegations brought forth by the Plaintiffs. More specifically, the suppliers of cattle to the four major meatpackers must present strong evidence proving that they are experiencing underpayments due to collusion among those major purchasers. In its opinion in Mandeville Island Farms,80 the Supreme Court held that victims of a buyer cartel are entitled to recover antitrust damages. In this case, growers of sugar beets alleged that sugar beet refiners conspired to fix the price paid for sugar beets in northern California. In its opinion, the Court held that refiners abused their dominant position in the market, and that the sugar beet growers were entitled to compensation under of the Clayton Act. This ruling made it clear that sellers have standing to sue if they are direct victims of monopsonistic practices. Previous decisions have provided the foundation for damage calculations in antitrust cases. Specifically, in Bigelow, the Supreme Court explained that damages are measuredby comparison of profits, prices and values as affected by the [antitrust violation], with what they would have been in its absence under freely competitive conditions.81 78. 15 U.S.C. . 79. Id. 80. Mandeville Island Farms v. American Crystal Sugar Company, 334 U.S. 219 (1948). 81. Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264 (1946).
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104 The Antitrust Bulletin 68(1) The Bigelow instruction requires the determination of the but-for price, that is, what the price would have been had there been no conspiracy. In the context of the fed cattle market, a victim must estimate what would have been the competitive price absent the collusive agreement.82 This is not an easy task, and it requires rigorous econometric modeling. Once the but-for cattle price has been established, the total measurement of damages would be the difference between the price absent conspiracy and the actual price, multiplied by the quantity of fed cattle sold to the cartel members. This total is then trebled. However, not every victim of a collusive agreement has standing to sue for damages in an antitrust case. In the previous section, we identified three main groups that would be injured by the formation of a cartel in the fed cattle market—ranchers, feedlot operators, and beef consumers. Even if liability is established, not all these groups are entitled to compensation. Calculations become even more complicated when some of the individuals in these groups have standing, while others do not. I will now examine these distinctions. While the court has not reached a verdict, for ease of exposition, we will analyze these victims under the assumption that the collusive agreement to reduce the price paid for cattle does exist.A. Direct SuppliersThese members of the market are suppliers of fed cattle that sold directly to the cartel members. These suppliers sold their cattle at an artificially depressed price in either the cash market or the contract market. In some cases, these would be ranchers, while in other cases, they would be the feedlot operators. In either case, the anticompetitive actions of the cartel members injured these suppliers directly, and so they have standing to sue under of the Clayton Act.B. Indirect SuppliersThese are mainly ranchers who have sold to the direct suppliers of the cartel members. For example, if a rancher sold their cattle to a feedlot operator who then sold directly to the meatpackers, the rancher would be an indirect supplier. While this rancher would be subject to depressed prices for their cattle because of the alleged collusion, they do not sell their cattle directly to any purchasers of fed cattle. Thus, while they are in the supply chain, according to federal law, these suppliers are not entitled to compensation under Illinois Brick.83C. Downstream PurchasersDownstream meat consumers—grocery stores, restaurants, institutions, and other direct purchasers of beef—are faced with higher beef prices as a consequence of the cartel agreement. However, these consumers are unable to sue for damages caused by the lower prices paid in the cattle market because they are not participating in the market in which the collusion occurred, that is, the cattle market.84 82. The Plaintiffs suggested that this number is estimated to be $150 per cwt mark, but independent econometric analysis is required to verify that this estimate is sound. 83. Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). For further discussion, see Volume IIA: 2 Phillip Areeda, Herbert Hovenkamp, Roger D. Blair, and Christine Piette Durrance, Antitrust Law g (5th ed 2021). Some state statutes, however, provide standing to indirect buyers. It is unclear if the same is true for indirect suppliers under state law. 84. While some may believe that these individuals are entitled to damages, under a partial equilibrium analysis, they are not considered individuals within the direct market, that is, the cattle market, and thus do not have standing to sue under this Complaint.
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Alderman 105D. Umbrella Victims85In the market for fed cattle, these are ranchers and feedlot operators that sell to the non-colluding, fringe firms. These are other beef cattle suppliers who receive a depressed price for their cattle due to the presence of the cartel, and so these sellers are harmed by the collusive agreement. Referring back to Figure 2, this injury is equal to (P2 – P1)Qf, which may be a large and broadly significant loss to the suppliers of cattle. If 25 million cattle are sold in a year, approximately 15 percent of those cattle are sold to fringe meatpackers. That means approximately 3.75 million steers and heifers are not accounted for when calculating damages. Let’s assume those cattle weigh approximately 1,000 pounds each and were sold for $125 per cwt instead of the estimated $150 per cwt alleged by the Plaintiffs. This means that a supplier of fed cattle to the non-colluders will receive () $$ 150 125 10 250 less for each steer or heifer sold. In total, the loss to all the ranchers and feedlot operators who sold to meatpackers outside of the Big Four is almost $938 million per year. Since the alleged damage period is 2015 to present, these damages would amount to some $7.5 billion.86 But the suppliers who lose out on almost $8.0 billion in revenue may not have standing to sue for antitrust damages because they are not direct victims. As a result, they may never receive compensation for these losses. The Supreme Court has not resolved the split in the Circuits for umbrella claims by overcharged buyers. So far, it seems that there have been very few judicial rulings on this issue for underpaid sellers.871. Additional Considerations. It is interesting to note that there may be many sellers that would be categorized as both umbrella plaintiffs and direct suppliers. For example, a feedlot operator with 10,000 head of cattle may sell 9,000 of those head to a colluding firm, while the remaining 1,000 are sold to a noncolluding firm. Even if the operator sells all 10,000 head at the same suppressed price, they would only be entitled to damages for the 9,000 head sold directly to the cartel member.88 If the feedlot operator sold all of those cattle for $125 per cwt, they would receive $$ 250 9 000 2 250 000 (, ), , but they would be unable to receive $$ 250 1 000 250 000 (, ), for the sales to non-colluders. Similarly, a cattle rancher may be both a direct and indirect supplier. Suppose a rancher raises 10,000 cattle and sells 9,500 of those cattle to a feedlot. They maintain direct ownership of the remaining 500 cattle and rent space in the feedlot for those 500. If the 10,000 head are sold to any of the Big Four meatpackers for slaughter at a depressed price, the rancher is both a direct and indirect supplier. However, they only have standing to sue for the 500 head that they continued to own.VI. ConclusionAlthough there are allegations of collusion among the Big Four meatpackers, there has been no judicial determination at this time. While the general evidence provided by the Plaintiffs does suggest a decrease in their respective slaughter counts, as well as a decrease in the average price paid per head of cattle, some observers are skeptical that a collusive agreement truly exists among the four major meatpackers. Although there are clear incentives to form a cartel in this market, whether the changes 85. ROGER D. BLAIR & CHRISTINE PIETTE DURRANCE , Umbrella Pricing: Antitrust Injury and Standing, in ISSUES IN COMPETITION LA W AND POLICY ( W . DALE COLLINS ed., 2008); Roger D. Blair and Christine Piette Durrance, Umbrella Damages: Toward a Coherent Antitrust Policy, 36 CONTEMP. ECON. POLICY , 241 (2017). 86. This estimate assumes the alleged damage period is 2015, that is, eight years. 87. For an example of such a ruling, see Winters v. Ocean Spray Cranberries, Inc., 296 F. Supp.3d 311 (2017). 88. This claim is based on the current identification of victims in the Complaint. It specifies that the only members of the class action are direct sellers, so umbrella plaintiffs have been excluded in this case so far. See 3rd Amended Class Action Complaint, In re Cattle Antitrust Litigation, Civil No. 19-cv-1222 (JRT/HB) at .
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106 The Antitrust Bulletin 68(1) in price and slaughter counts are true and the result of a collusive agreement or market forces is up to the courts to decide. The points addressed in this article stem from a complaint brought by ranchers and feedlot operators. The purpose of this article is not to pass judgment on whether the evidence alleged by the Plaintiffs is damning. Nor is it to prove that the evidence provided is accurate. The goal of this article is to encourage a sound economic analysis of the fed cattle market structure and its characteristics, given the evidence being provided, so that the courts can come to a fair and just conclusion for all. AcknowledgmentsMany thanks go to Sara Bensley for advice on legal matters, and Chris Prevatt and Derrell Peel for their advice on economic issues in the cattle and beef markets. I also thank Travis Alderman for his emotional support during this endeavor. Without his encouragement, I would not have had the courage to publish this article. Roger Blair provided some much-needed advice and suggestions on an earlier draft, as did Peter Carstensen, Javier Donna, Mark Rush, and David Sappington.Declaration of Conflicting InterestsThe author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.FundingThe author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: I am grateful for the generous financial support of the Cutler Family, the Robert F. Lanzillotti Public Policy Research Center, the Ronald E. McNair Scholars Program, and the University of Florida’s Department of Economics. None of the aforementioned can be blamed for what follows. I take full responsibility for any remaining errors.DisclosureI have not been retained by any party with an interest in the beef or cattle litigation.
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mods:abstract displayLabel Abstract lang en There are numerous accusations of collusion in protein markets throughout the United States. The cattle market is no exception. The four major meatpackers stand accused of acting in concert to lower the quantity of cattle purchased in the cash market for fed cattle. The plaintiffs in these cases allege that these meatpackers have purposefully depressed the price they pay to various cattle ranchers and feedlot operators. This article explores the allegations brought forth in one of these complaints, as well as the economic consequences resulting from the formation of a cartel in this market if a collusive agreement truly exists.
mods:accessCondition Copyright Brianna Laela Alderman. Permission granted to the University of Florida to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
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mods:note Awarded Bachelor of Arts, summa cum laude, on April 29, 2022. Major: Economics
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Advisor: Roger Blair. Advisor Department or School: Economics.
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