Thursday, August 15, 2013

Smithfield and Chinese Demand for Pork

The New York Times has a good article on the implications of Shuanghui (Chinese firm) purchasing Smithfield (US firm).  While many are concerned about China exporting pork to the US (in terms of food safety), this merger seems to be more about the increased demand for pork in China.  How as a seller of pork do you meet demand if you do not have the supply (or expect the marginal cost of increasing supply to be greater than other alternatives)?  Purchase other suppliers; which seems the most logical economic explanation for this horizontal merger.

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