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Summary
Why have no economic studies utilized differences-in-differences to study price discovery and competition in the U.S. cattle and beef industry? Industry complexities make it difficult, if not impossible, to find untreated control groups necessary for differences-in-differences estimation. To overcome these challenges, we introduce novel theory and methods to demonstrate that a never-treated “device” can be used as a valid control group for identifying the average treatment effect on the treated group. Employing an industry wage rate series as our device, along with a panel of regional fed cattle to wholesale boxed beef price spreads, we estimate the cattle to beef price spread impacts of the industry-wide implementation of multi-plant coordination. Using the 2013 multi-plant coordination shutdown of a large beef packing plant as a marker for multi-plant coordination implementation, we estimate that cattle to beef price spreads were 13.5% wider in the post-shutdown period than they would have been in the absence of the business practice. This amounts to $9.42/cwt that was captured by the beef packing industry from upstream cattle producers and/or downstream wholesale beef purchasers due to multi-plant coordination.