Oligopolists Then and Now: A Study of the Meatpacking Industry

Article excerpt

ABSTRACT

This paper explores the hypothesis that the meat packing industry has had an evolution that, even with public policy changes, continues to push the industry towards an oligopolistic structure (at times monopoly). The firms today, as in years past, continue to be highly motivated by consolidation and integration. The paper will begin by tracing the historical development of the meatpacking industry, the regulatory response to the industry, and finally discuss the literature and current consolidation within the industry. After doing this, the paper hopes to reveal that there is a common thread that runs through the meatpacking industry and that is that economies of scale and cost advantages of integration are the driving force in 2002 just as they were in 1900. It appears that in the case of the meatpacking industry history sometimes repeats itself.

INTRODUCTION

The structure of modern American industry and enterprise has been a topic of popular and academic discussion and an issue of debate among economists and policymakers for nearly 125 years. A.D. Chandler in his classic 1962 study, Strategy and Structure, argues that the unprecedented industrialization of the late 19th century led to industrial enterprises like the U.S. had never before seen. Chandler specifically focuses on firms like DuPont, General Motors, Standard Oil, and Sears Roebuck and Company. However, Chandler also points to meatpacking as an industry where structure followed strategy. Chandler defines business structure as the organization devised to administer enlarged activities. He concludes that the organizational structure resulted from entrepreneurs planning and administering enterprise growth (Chandler, 1962).

As the nineteenth century closed, firms in railroads, steel, tobacco, sugar refining, oil, explosives, brewing and distilling, agricultural equipment and meatpacking consolidated market power. The structure of major U.S. industries departed rapidly from the classical definition of competition. Beginning in the 1870s, consolidation and integration (both vertical and horizontal) proceeded with dizzying speed and transformed the economy. By the end of the 1890s, oligopoly, virtual monopoly or shared monopoly characterized American industry. In many cases, firms in oligopolistic or monopolistic industries enjoyed economies of scale and scope, along with increased production and lower prices for consumers. However, predatory actions and other negative consequences of market power produced a popular clamor against the trusts. Ida Tarbell, Frank Norris, Upton Sinclair and many others gave voice to this protest.

As protests rose, the demand for public control of big business became a reality. These demands for public restraints on business led to the passage of the Interstate Commerce Act of 1887, the Sherman Anti-Trust Act in 1890 and the Meat Inspection Act of 1891. Later the 1904 prosecution of the Northern Securities Company and the creation of the Bureau of Corporations within the Department of Commerce occurred and were the cornerstones of Theodore Roosevelt's "Trust Busting" policy. The Sherman Act remains today the foundation of United States anti-trust policy. However, neither enforcement nor interpretation of anti-trust law has been consistent over the course of the twentieth century. As well, anti-trust action continued to be in the popular media in the twentieth and now the twenty-first century as concerns over increasing concentration in a variety of industries takes on momentum. Even though this case has now been settled, the decision to pursue monopoly charges against Microsoft is the most publicized recent example.

HYPOTHESIS

This paper explores the hypothesis that the meat packing industry has had an evolution that, even with public policy changes, continues to push the industry towards oligopoly (at times monopoly) and from all appearances will continue to do so. …