Bidding for cattle in the Texas Panhandle

Abstract

Four beef-processing plants in the Texas Panhandle region procure cattle from feedlots in a form of firstprice, sealed-bid auction. These auctions have features that distinguish them from standard auctions. Using transactions-level data, we estimated packer bid functions and, via simulations, compared the extant bidding environment to an alternative framework. The simulated auctions on average produced higher seller revenue, more frequent sales to the plant valuing the cattle most highly, and more switching by feedlots among competing packers. We attribute these results to packers' inconsistent bidding on the available lots of cattle and offer alternative explanations for this behavior. Copyright 2004 American Agricultural Economics Association.