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The Impacts of an Antitrust Investigation: A Case Study in Agriculture

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Abstract

We analyze the impacts of an antitrust investigation on the purchasing practices of a buying collaboration and its common bidding agent. Using a repeated cross section of prices across procurement auctions that were and were not subjected to the investigation, we find that auction prices in the targeted auctions: (i) significantly increased as soon as the targets were made aware they were under investigation; (ii) remained higher as long as the investigation was open; and (iii) systematically declined to the same low pre-knowledge state after the closure of the investigation without prosecution. Finally, the counterfactual impact on auction prices by the removal of the common bidding agent and the demise of the buying collaboration at a later date was on par with the impacts of the investigation.

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Notes

  1. GIPSA is responsible for the enforcement of the Packers and Stockyards Act of 1921, which covers unlawful acts of unfair, deceptive, discriminatory or monopolistic practices in the marketing of livestock, meat, and poultry. For details see http://archive.gipsa.usda.gov/pubs/psprogram.pdf.

  2. Earlier work (Breit and Elzinga 1973; Feinberg 1980; Block et al. 1981; Smith et al. 1987; Besanko and Spulber 1989; Bosch and Eckard 1991; Sproul 1993).

  3. Roughly $25 billion of livestock are sold at auction and 3,883 professional buying agents, including commissioned order-buyers and dealers, purchased $26.4 billion in livestock (USDA, GIPSA 2008).

  4. Also see similarly situated agents coordinating competition among numerous principals in Interstate Circuit, Inc. v. United States, 306 U.S. 208, 59 S.Ct. 467, 83 L.Ed. 610 (1939) and Toys “R” Us, Inc. v. Federal Trade Commission, 221 F.3d 928 (7th Cir. 2000).

  5. See Swift & Company v. United States, 393 F.2d. 247(7th Cir. 1968).

  6. See San Jose Valley Veal, Inc., 34 Agric.Dec. 966 (1975)

  7. See Hennessey, 57 Agric.Dec. 1432 (1998).

  8. See Monfort of Colorado v. Cargill, Inc., 591 F. Supp. 683, 706 (D. Colo. 1983), aff’d, 761 F.2d 570 (10th Cir.1985), judgment rev’d, 479 U.S. 104 (1986)

  9. According to FTC/DOJ (2000), a buyer collaboration is considered a ‘merger-in-part’. Following the Horizontal Merger Guidelines (2010, p. 19), when a post-merger HHI exceeds 2500, it is presumed that mergers producing an increase in the HHI of more than 200 points are likely to create, enhance or facilitate the exercise of market power.

  10. See Coatney et al. (2012) for further details of the auction’s competitive environment.

  11. The lead author of this research was the lead GIPSA investigator of the allegation, thus possessing intimate knowledge of the investigation. Due to a confidentiality agreement with the complainant auction company and the requirements of confidentiality by the then GIPSA’s lead investigator and now the lead author of this research, the names of the principals and agents involved cannot be disclosed. The data as presented, however, are available upon request.

  12. These data were analyzed in Coatney et al. (2012).

  13. Three GIPSA investigators attended one of the biweekly auctions. The lead investigator sat next to the common agent during the sale and informed him that he and his principals buying practices were under investigation.

  14. The justification for closing the investigation is privileged information. The lead investigator informed the complainant of the case being closed. The targets of the investigation subsequently contacted GIPSA for verification.

  15. GIPSA later officially suspended the common agent from purchasing in any market on December 16, 2008. To maintain anonymity of the common agent, we cannot cite the decision order of the Secretary of Agriculture.

  16. From conversations with AMS officials, their data contain only a sample of the transactions at any given auction on any given day.

  17. The price differentials in Coatney et al. (2012) depicted a significantly lower price at Monroe from October 4, 1999 through January 26, 2000. This is due to more comprehensive data provided by the auction company than is publicly available for this analysis.

  18. All data for the supply and demand shifters are publicly available. NASS Agricultural Prices reports at: http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1002; feed and replacement prices at: http://future.aae.wisc.edu/; and cutout values at: http://www.ams.usda.gov/.

  19. See U.S. v. Cargill, Inc., WL 1475752, 2000-2 Trade Cases P 72, 966, Comm. Fut. L. Rep. P 28, 212 (D.D.C. Jun 30, 2000) (NO. CIV. A. 991875GK).

  20. Private discussion on October 9, 2014 with management officials of the auction company that lodged the original complaint and one dealer buyer that purchases at the targeted market located in Monroe, WI.

  21. The MPR was implemented in April of 2000. More background on the MPR and its influences on the cattle market can be found in Boyer and Brorsen (2013), Cai et al. (2011), and Pendell and Schroeder (2006).

  22. We estimate these standard errors using code from Hsiang (2010).

  23. We experimented with a range of distance cutoff points, serial lags, and also a uniform spatial weighting kernel, and the standard errors are similar to the ones reported here.

  24. Indices were construct by dividing each value in the series by the value for week one in that series.

  25. For these reasons the inclusion of a full set of periodic dummy variables has become the norm within the DD framework.

  26. To our knowledge, the DD framework has not been applied in the cattle auction/pricing literature as it is not suited for analyzing policies that affect all traders/markets simultaneously. To implement it, one requires a control group (not affected by policy) and a treatment group (affected by policy). The cited papers looking at MPR effects, (see footnote 21) are a good example. Since the MPR was implemented unilaterally, there is no observable control group; thus, one cannot identify the effect using DD.

  27. We also first differenced Eq. (1) in the same way and found that the results are the same as in column 5 in Table 3, as one would expect.

  28. The dollar estimates assume that the 454 head per week sold at the Monroe auction persisted across the 71 week investigation and the 106 week residual period and cows continued to average 12.83 cwt/head.

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Acknowledgments

The authors thank the editor, Lawrence White, and two anonymous reviewers for their guidance and insightful comments. We also thank Kraig Roesch (GIPSA, Regional Director, Western Regional Office) for his legal and industry expertise; Mike Bourke and Dick Zuelke for lending their industry and auctioning expertise; Tracy Dowty, Tom Duggan, Kristin Corash, and Weylin Lucius for their assistance in conducting the original GIPSA investigation; and a special thanks to Melinda Meador, for pointing out the value of a ‘cop in the median’. Finally, we thank the USDA, Economics of Markets and Development Program, Agriculture and Food Research Initiative, National Institute of Food and Agriculture for funding the research. However, the conclusions, interpretations, and errors made in the article are the authors’ alone.

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Authors and Affiliations

  1. Department of Agricultural Economics, Mississippi State University, 365 Lloyd-Ricks-Watson Bldg., P.O. Box 5187, Starkville, MS, 39762, USA

    Kalyn T. Coatney

  2. Department of Agricultural Economics, Mississippi State University, 314 Lloyd-Ricks-Watson Bldg., P.O. Box 5187, Starkville, MS, 39762, USA

    Jesse B. Tack

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  1. Kalyn T. Coatney
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Correspondence to Kalyn T. Coatney.

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Coatney, K.T., Tack, J.B. The Impacts of an Antitrust Investigation: A Case Study in Agriculture. Rev Ind Organ 44, 423–441 (2014). https://doi.org/10.1007/s11151-013-9415-7

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