Scale economies estimation in the pork meat industry in Chile

Abstract

The pork meat industry in Chile exhibits significant rates of production growth, with a decreasing trend in the wholesale market price and growing levels of concentration of the supply in a reduced number of companies. The structural element that sustains concentration and expansion of the production is the presence of increasing returns to scale in the production process. This investigation had the objective to verify the presence of economies of scale in this industry. Using a Cobb-Douglas cost function and the assumption of maximization of the benefits of the company in imperfect competition markets, an econometric model was estimated, that allowed to estimate indirectly the coefficients of the function of underlying production. For the period 1975-2005 the industry presented increasing returns to scale, with an elasticity product-scale of 1.23 and economies of scale, with elasticity cost-production of 0.81. It was concluded that this industry shows conditions to increase its advantage in costs and to expand its competitiveness in international markets.