Search

Buyer market power can significantly reduce farm prices and incomes, making curtailment of such power a key strategy to improve rural livelihoods in emerging economies. A “double marginalization problem” occurs when market power is exercised at multiple stages in a supply chain. Although double marginalization has been studied extensively from a seller‐power perspective, the corresponding problem on the buyer‐power side has received scant attention. This paper addresses that lacuna through developing a vertical market model that allows buyer power to be exercised in local farmer–trader markets and also downstream at the trader–processor stage. We derive equilibrium results for output, prices, and economic welfare under alternative competition scenarios. The model is applied to the Indonesian rubber value chain by estimating the magnitude of buyer market power in farmer–trader and trader–processor interactions and quantifying the extent of welfare loss and redistribution of income among market participants due to double marginalization. Standard theory for seller double marginalization posits that it should be eliminated through vertical coordination within the supply chain. We conclude by discussing why such coordination may not occur within emerging‐economy supply chains and considering policy innovations to facilitate better coordination.

This article models and estimates the efficiency gains from using market‐based instruments relative to command and control to manage groundwater. A theoretical model of an imperfectly competitive groundwater market is developed to show how the magnitude and distribution of the gains from trade change as market structure varies. Market structure is a key consideration because future groundwater markets will likely feature geographic limitations to trade, large agricultural players, and a legal environment that is conducive to forming cartel‐like coalitions. Application of the model to a groundwater‐dependent agricultural region in southern California shows the existence of large gains from trade, despite the potential for market power, with benefits up to 36% greater than that under command and control. Distributional impacts, however, can be sizable even for small degrees of market power. Simulations that vary market conditions show that results likely generalize to other groundwater basins.

The display of nutrition facts is mandatory on virtually all packaged foods sold in the United States. Yet manufacturers and retailers add their own claims to differentiate their products and capture consumers' attention at point of sale. We implement experimental nutrition claims on shelf labels in a retail setting and test how consumers react to the display of these labels that express information reported on the Nutrition Facts Panel in a different format. We hypothesize that our labels either shift demand for the highlighted healthier products uniformly or trigger more complex demand rotations. Our estimated heterogeneous labeling effects suggest that consumers process nutrition information differently depending on which and how many claims are displayed and prefer products labeled with a single claim overall. When we simultaneously consider demand and supply responses under three price setting behaviors (competitive pricing, Bertrand‐Nash pricing, and monopoly pricing), we find that consumer surplus and overall welfare is highest when our labels display multiple nutrient claims and retailers are able to adjust prices across the entire product category. Firms' profits are highest when single nutrient claims are displayed, however. We conclude that firms with market power have little incentive to voluntarily display nutrition claims that maximize welfare.

Can farmers adapt to climate change by altering effective weather conditions on their fields? Existing technologies allow farmers to cool down plants by a few degrees during critical periods, reducing the damage from excess heat. With nonlinear effects of high temperatures on yields, slight cooling can bring significant gains in many crops. We call this approach “microclimate engineering” (MCE) and note that it could be useful as a climate change adaptation concept. Our case study deals with California pistachios, threatened by warming daytime temperatures in the winter. A new solution for sunlight reflection, based on products already used in other contexts and crops, could potentially help deal with this challenge. We develop a model to analyze grower choice and market outcomes with MCE for California pistachios. The expected increase in welfare for the period of 2020–2040 is assessed at 0.49–1.42 billion dollars under several scenarios. Simulation results show increases in consumer surplus and total welfare when MCE is available but decreases in aggregate grower profits. We also introduce market power to test its potential effects on the gains from MCE, finding mixed effects.

This paper provides a theoretical model of how various aspects of the “buy local” movement influence social welfare and output across two regions. Market power considerations are also addressed where one region has a competitive advantage in production. While consumers buy local for a variety of reasons, our model categorizes some of the motivations and analyzes the impacts on output under various market structures. Welfare is calculated when demand is changed due to subsidies or taxes. We also allow for the presence of externalities. We find that, in the absence of market power or externalities, deadweight losses occur when the region without a competitive advantage buys more locally. However, in the presence of significant externalities and in the presence of market power, it is possible that profits to producers from consumers buying local could increase more than consumer utility is harmed, thus increasing aggregate social welfare. This could arise if consumers genuinely feel there are sufficient positive externalities from local production or negative externalities from non‐local production to warrant the loss of efficiency. We point out that understanding the motivation behind the movement is critical when analyzing welfare effects since some motivations are counter‐productive to each other.

“Agriculture by contract” ($\hbox {A}\times \hbox {C}$) is the main Mexican government program aimed at mitigating price risks for agricultural producers in Mexico. $\hbox {A} \times \hbox {C}$ has unique features involving forward contracts and the provision of basis subsidies and subsidized exchange-traded futures options for both producers and intermediaries. A simulation model is developed to analyze the market and welfare effects of $\hbox {A}\times \hbox {C}$. When applied to corn, results show that $\hbox {A}\times \hbox {C}$ exerts substantial impacts and causes large transfers across sectors. Even if $\hbox {A}\times \hbox {C}$ reduced intermediaries' market power to the largest extent feasible, results indicate that it would still cause important losses in aggregate welfare.

Retail-price pass-through is one of the most important issues facing manufacturers of consumer packaged goods. Although retailers tend to pass higher wholesale prices through to consumers quickly and completely, they often do not pass on trade promotions. Currently, asymmetric pass-through is commonly thought to result from retailers' exercise of market power. Alternatively, it may be because of consumer search behavior and retailers' competitive response. We test this theory using a panel threshold asymmetric error-correction model applied to wholesale and retail scanner data for ready-to-eat cereal for a number of retailers in the Los Angeles metropolitan market. We find that consumer search behavior contributes significantly to imperfect pass-through. By allowing pass-through to depend on market power and consumer search costs, we find results that are contrary to the conventional wisdom. Namely, market power causes retail prices to fall quickly and rise slowly, whereas consumer search behavior causes retail prices to rise quickly and fall slowly-precisely the "rockets and feathers" phenomenon.

The emergence of community supported agriculture (CSA) farms has been recognized as a new way for small farms to remain competitive while engaging in their local community through direct marketing. In this study, we report on first revealed preference valuation of CSA attributes using data on share prices and CSA characteristics for the summer 2012 growing season. Using data covering 453 CSA farms in Michigan, New York, Ohio, and Pennsylvania, we develop a hedonic model based on firm‐level prices to reveal consumer valuations of CSA attributes, including various types of organic certification. We also test for competition in the CSA market using a model of firm entry to evaluate whether firms appear perfectly competitive, which is a requirement when using firm‐level prices in our hedonic analysis. Our results reveal a price premium of approximately 7% for USDA organic certification, although this value is heterogeneous across states. We find no premium associated with competing certified naturally grown programs. Finally, we find that CSA farms exhibit little market power and appear to act competitively even with few market entrants.

Controversy remains about the effectiveness of the 1999 Livestock Mandatory Price Reporting Act (MPRA). We determine the likely changes in beef packers' market power after the MPRA by using an agent-based, first-price common-value auction. Past research has employed Cournot models, but we use an auction model, which more closely resembles the actual cattle procurement process. We find that feeders benefit from the MPRA regardless of whether price uncertainty decreases for packers and/or feeders. If the packers' price uncertainty is reduced, the feeder benefits from an increase in competition between the packers. If the feeder's price uncertainty is reduced, the feeder benefits from imposing more accurate reserve prices. Copyright 2013, Oxford University Press.

A structural econometric model of vertical relationships is adopted to identify pricing behavior in the supply chain for fluid milk in the United States. The model consists of a system of equations that allows estimation of oligopoly power of dairy co-operatives and downstream firms, exploiting federal milk marketing order regulations to identify co-operatives' marginal cost. A key finding is that co-operatives use their market power to raise the farm price of milk by almost 9% above marginal cost, resulting in an income transfer of more than $600 million per year in markets regulated by federal milk marketing orders. Copyright 2012, Oxford University Press.

We derive a structural model of firm behavior that is composed of the Generalized Quadratic Almost Ideal Demand System to represent both consumers' milk preferences and firm profit maximization conditions that allow for a range of competitive scenarios. The importance of this specification is found in its fuller representation of consumer preferences, as opposed to the Linear Approximate Almost Ideal Demand System used in previous analyses. We apply this structural framework to investigate retailer conduct in the sale of beverage milk in a U.S. market using product-level data. Our Lerner Index estimates show that retailers are not perfectly competitive. However, this deviation is small. Copyright 2012, Oxford University Press.

In recent years, organic food has emerged as an important segment in food retailing. The potential for sale expansion supported by the rapidly growing demand and positive image of organics has prompted U.S. food retailers to campaign around this relatively small segment, which represents less than 4% of total food expenses (specifically, 0.97% in 1997 rising to 3.59% in 2009, Organic Trade Association 2009). The retail giant Wal-Mart launched a “going green and organic” campaign to greatly increase the availability of organic products with a goal of low prices starting the summer of 2006.1 Conventional food retailers, including traditional supermarkets and newly established value-oriented retail chains, have increased their organic market share from 33% in 1995 to 47% in 2005. Facing competition and losing market share, the retail giants at the opposite end, Whole Foods Market and Wild Oats Market, merged in 2007 with a plan to obtain greater efficiencies and possibly market power from an expanded retail footprint. In the present paper, we investigate empirically three issues on the linkages between organic food and store format choice (SFC). First, we evaluate the impacts of consumer preference heterogeneity in appreciation for organic products on SFC. Second, we investigate whether the increased availability of

The relationship between the dynamic cattle cycle and the potential for market power in cattle purchases has rarely been studied. This paper provides a conceptual framework showing how the cattle cycle and buyer market power are related. Not only does a larger cattle stock lead to a lower fed cattle price, but the cattle stock's negative effect on price is magnified by the degree of buyer market power in cattle procurement. Empirical findings support the posited theoretical relationships and help explain why previous researchers reached different conclusions regarding the extent of market power in the industry. Copyright 2010, Oxford University Press.

We investigate revealed political market power reflected in the pattern of price discrimination by end use that is the hallmark of U.S. milk marketing orders. We show that the pattern of prices that would maximize producer profits, if producers operated a cartel with monopoly power in a regional market, is far above actual government-set price differentials between milk used for fluid products and that used for manufactured products. The pattern of actual price differentials is consistent with political welfare weights for producers relative to consumers that are small compared to the weights that would yield maximum producer profits. Copyright 2007, Oxford University Press.

In this article we use structural econometrics to formally test whether the use of the alternative marketing arrangements (AMAs) by pork packers is the source of their market power on the spot (cash) market for live hogs. We specify the pork packers' conjectures of the change in the industry total market procurement of live hogs through the spot market with respect to their AMAs stocks. The test is carried out using the mandatory price reporting data. Our results show that pork packers have statistically significant market power on the spot market for live hogs, but the source of that market power cannot be narrowed down to the existence of AMAs stocks. Copyright 2009, Oxford University Press.

Structural models used to measure market power, though widely employed, continue to be criticized. We compare alternative market power tests, including nonparametric and Solow residual-based (SRB) tests. We develop SRB methods that permit nested testing for both monopolistic and monopsonistic market power by the same firm. These tests and a set of nonparametric tests are implemented to examine market power exertion by U.S. cigarette manufacturers from 1977 to 1993. All tests indicate that cigarette manufacturers exerted monopsonistic power in the upstream tobacco market. They are mixed on whether monopolistic power exertion was exerted in the downstream market. Copyright 2007, Oxford University Press.

This article investigates the competition effects of supermarket services using fluid milk as a case study. A simultaneous equation model for services and price competition is estimated with scanner data from fifteen supermarket chains using two alternative measures of services, namely store size and principal components of in-store services. Empirical results show that increasing services results in economies of scope, greater supermarket chain-level demand, lower price elasticity of demand, and enhanced market power, leading to higher milk prices and quantity sold. We conclude that, as result of service competition, supermarkets differentiate themselves from competitors and successfully attract less price-sensitive consumers. Copyright 2007, Oxford University Press.

This paper examines the incentive of atomistic agricultural producers within a specific geographical region to differentiate and collectively market products. We develop a model that allows us to analyze the market and welfare effects of the main types of real-world producer organizations, using it to derive economic insights regarding the circumstances under which these organizations will evolve, and describing implications of the results obtained in the context of an ongoing debate between the European Union and United States. As the anticipated fixed costs of development and marketing increase and the anticipated size of the market falls, it becomes essential to increase the ability of the producer organization to control supply in order to ensure the coverage of fixed costs. Whenever a collective organization allows a market (with a new product) to exist that otherwise would not have existed there is an increase in societal welfare. Counterintuitively, stronger property right protection for producer organizations may be welfare enhancing even after a differentiated product has been developed. The reason for this somewhat paradoxical result is that legislation aimed at curtailing the market power of producer organizations may induce large technological distortions.

Transportation costs and buyer market power reduce prices and income received by farmers in developing countries. Transportation costs directly affect the marketing margin and also exacerbate market power by limiting farmers’ access to buyers. This article develops a multistage spatial model to determine optimal investment in transportation improvements, taking account of impacts on marketing costs and competition. The beneficial impact of investments from farmers’ perspective is mainly through enhanced competition, meaning significant under-investment may occur if this effect is ignored. However, the optimal investment depends on the relative importance of transportation costs; in some settings, transportation improvements reduce farm prices because buyers rationally over-compensate farmers for these costs. Copyright 2007, Oxford University Press.

Biopharming stands to significantly expand the uses of many agricultural crops. This article examines the potential size and distribution of welfare gains from biopharming transgenic tobacco as a source of human serum albumin (HSA) using an economic surplus model under imperfect competition. The results suggest that HSA from transgenic tobacco will generate annual profits for the innovating firm of between $25 million and $49 million. On the other hand, consumers are unlikely to benefit during the patent life of the product given the innovator's market power. Copyright 2006, Oxford University Press.

In this article we look for empirical evidence of hold-up in broiler industry production contracts by using the cross-sectional national survey of broiler growers. First, we focus on the problem of under-investment and hypothesize that the degree of agent's (grower's) under-investment systematically depends on the principal's (integrator's) market power and the level of asset specificity. Second, we provide an indirect test of hold-up by looking at the grower contract payoffs as a function of the frequency of the housing facilities upgrade requests and the principal's market power. The results show moderate empirical support for the presence of hold-up. Copyright 2006, Oxford University Press.

Information technology (IT) facilitates information exchange between retailers and suppliers. Based on evidence from food industry, information strategies under uncertainty are analyzed, using game theory. Some key results are under certain conditions, retailers withhold valuable sales data from suppliers even if this means less supply coordination; a revealed equilibrium exists where suppliers learn retailers' market data despite retailers' withholding of such data; this leads either to full information convergence or, surprisingly, incomplete information convergence with some informational asymmetry left; retailers with greater market power and numerous suppliers are more inclined to share, rather than to withhold, information. Copyright 2005, Oxford University Press.

The purpose of this article is to examine the system-wide effects of the introduction of genetically modified (GM) products with and without labeling and to compare these two regimes to a third regime where GM products are not present either because they have not yet been developed or because they have been banned. For each regime, the decisions and welfare of consumers, producers, and life science companies are examined. The article explicitly incorporates the consumer response to the introduction of GM technology and considers different market structures of the life science sector. Copyright 2004, Oxford University Press.

It is shown that the presence of informed buyers is necessary but not always sufficient for producers to use prices as signals of product quality. A sufficiently high fraction of informed buyers eliminates the lemons problem. A small fraction of informed buyers mitigates the lemons problem, provided that buyers' prior belief of high quality is sufficiently pessimistic: price reveals high quality at a signaling cost which increases with market power. However, if buyers' prior belief of high quality is optimistic when the market is poorly informed, then the lemons problem is not overcome. Copyright 2004, Oxford University Press.

This article analyzes the effects of foreign patent rights on U.S. bilateral exports. The empirical analysis covers three highly disaggregated drug industries over three decades. We estimate bilateral trade equations for each industry using cross-country data on the strength of national patent rights. The findings show that strong foreign patent rights enhance the market power of U.S. drug exporters across countries with weak imitative abilities. Alternatively, strong foreign patent rights stimulate the market expansion of U.S. drug exports across countries with strong imitative abilities. These effects are larger in magnitude during the 1980–90s relative to the 1970s. Copyright 2002, Oxford University Press.