Scale Economies and Consolidation in Hog Slaughter

Abstract We use establishment based panel data to estimate a cost function which identifies the role of scale economies in hog slaughter consolidation. We find modest but extensive technological scale economies in the 1990s, and they became more important over time. But wages rose sharply with plant size through the 1970s, and those wage premiums generated a pecuniary scale diseconomy that largely offset the effects of technological scale economies. The size‐wage relation disappeared in the 1980s; with growing technological scale economies and disappearing pecuniary diseconomies, large plants realized growing cost advantages over smaller plants, and production shifted to larger plants.