Search

We integrate a differentiated goods oligopoly model with a political-economy model to assess the effectiveness of the partial price-ceiling policy in the Israeli fluid-milk market. We estimate minor political influence of the industry on regulators with respect to the price ceilings, and find markups in the regulated segment considerably lower than those in the unregulated one. Compared to a simulated unregulated industry, the prevailing partial price-ceiling regulation is found reducing market prices by 22% and markups by 78%, and increasing social welfare by 12%. The hypothesis of collusion in the unregulated segment is statistically rejected. We show that the combined estimates of political influence and demand substitution across products turn collusion in the laissez-faire segment an inferior strategy from the industry’s perspective.

Establishing agritourism attractions is a favored practice for farm diversification among farmers and policy makers who support rural development. Despite the fact that they are all grouped under the category of agritourism, it appears that some of these attractions are based on the active farm, while others are based on rural ambience. In this study, we want to provide answers to the following questions. From a welfare perspective, which type of attraction—one based on the active farm or one based on rural ambience— should a farmer be incentivized to diversify to? Which type of support scheme in this market should be pursued for enhancing welfare? We modeled the agritourism attractions as a differentiated goods market and applied it to data collected from a sample of attractions in the Israeli market. We used the estimated model to simulate a scenario in which all farmers based their attraction on an active farm. We show that in comparison to the present situation, in which only some farmers base their attraction on their active farm, the market would suffer a decrease in the welfare of both consumers and producers. Thus, farmers are better off basing the attractions on rural ambience. We also show, by simulating the market under two support schemes, that an indirect support measure such as infrastructure improvement has a stronger impact on the welfare of consumers and producers in the Israeli market than a direct scheme such as capital subsidization.