Estimating bargaining strengths of Canadian chicken producers and processors using a bilateral monopoly framework

This study develops a dynamic price adjustment mechanism for the Canadian chicken industry using a bilateral monopoly framework. The model compares the processors and producers’ bargaining strengths in order to determine the equilibrium price of live chickens in Ontario. The theoretical results show how the equilibrium price of live chickens and each party’s profit depend on the coefficient of bargaining power. The stochastic properties of price and cost data call for cointegration techniques to infer the bargaining weights. The hypothesis of equal bargaining strengths between processors and producers in Ontario over the 1997-2002 period is strongly rejected by the data. It is shown that chicken processors had greater bargaining power than chicken producers because live chicken prices were highly correlated to chicken producers’ average costs. [Econlit citations: C22, L13 and Q13].