Economic Impacts of Abolishing Vertical Integration in the US Pork Industry

This paper develops a multi-market framework of analysis of vertical relationships in pork production and game theoretic models of heterogeneous firms to examine the economic, market and welfare impacts of abolishing vertical integration in the US pork sector. Different scenarios on the causes of vertical integration and the potential states of nature that can emerge after the removal of this vertical market arrangement are considered within this framework. Analytical results are consistent across the different scenarios and forms of strategic interactions between pork producers and indicate that the abolishment of vertical integration in the US pork sector will hurt pork consumers, integrated pork producers and the hog producers involved. The only beneficiaries of this policy/change will be the non-integrated pork producers. However, the gains of these non-integrated pork producers are less than the consumer, hog producer and integrated pork producer losses, resulting in net social welfare losses from this policy.