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Article
Testing the Monopsony-Inefficiency Incentive for Backward Integration
American Journal of Agricultural Economics (1996)
  • Azzeddine Azzam, University of Nebraska-Lincoln
Abstract

In theory, monopsony at one stage in a vertically related market provides an incentive for backward integration into the adjacent competitive stages. By integrating backward, a monopsonist internalizes the monopsony inefficiency due to underemployment of the factor produced upstream. However, little is known about the importance of such incentive in practice. In this paper, the author provides an empirically implementable model to test the monopsony-inefficiency incentive for vertical integration. For illustration, the model is applied to the U.S. beef slaughter industry. Findings seem to support the monopsony-inefficiency incentive for backward integration by the industry into the live cattle market.

Publication Date
1996
Citation Information
Azzeddine Azzam. "Testing the Monopsony-Inefficiency Incentive for Backward Integration" American Journal of Agricultural Economics Vol. 78 (1996)
Available at: http://works.bepress.com/azzeddine_azzam/15/