Cost Economies: A Driving Force for Consolidation and Concentration?

Expanding concentration in many industries has generated concern about the determinants of these market structure patterns. Understanding such trends requires information on technological characteristics underlying cost efficiency. However, market structure and power analyses are typically based on restrictive models that limit the representation of cost drivers. In this paper, I model and estimate a comprehensive cost specification allowing for utilization, scale, scope, and multiplant economies using U. S. beef packing plant data. My evidence of substantive cost economies implies economic motivations for observed concentration, consolidation, and diversification and facilitates the interpretation and use of market structure measures for policy guidance.