A new study co-authored by Dr. Andrew J. Keller (Agricultural Risk Policy Center, North Dakota State University) and Dr. Krishna P. Paudel (Department of Agricultural and Applied Economics, Texas Tech University) introduces a novel framework to better understand how firm-level expansion affects market concentration. The paper develops the concept of the Herfindahl Neutral Point (HNP), a threshold that determines whether a firm’s growth increases or decreases overall market concentration.

The study, “The Herfindahl Neutral Point: A Firm-Level Threshold for Managing Market Concentration with Evidence from U.S. Hog Packing,” provides a refinement to the widely used Herfindahl–Hirschman Index (HHI) used in antitrust and merger analysis. At the HNP threshold, firm expansion leaves concentration unchanged; firms below the threshold reduce concentration when they grow, while firms above it increase concentration.

Using detailed data on U.S. hog packing from 2004 to 2024, the analysis shows that the sharp increase in market concentration in 2016 was driven by acquisitions from firms that crossed this threshold. In contrast, the subsequent decline reflects growth among mid-sized firms operating below the threshold.

The study also evaluates policy implications, demonstrating that targeted capacity expansion strategies, focused on firms below the threshold, can reduce overall market concentration.

Overall, the findings highlight the importance of considering firm-level dynamics when designing policies related to market structure, competition, and supply chain resilience.

The full study is published in the American Journal of Agricultural Economics and is available at:
https://doi.org/10.1002/ajae.70076