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Formula Price Contracts as an Alternative to Forward Integration by Farmer Cooperatives

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  • Royer, Jeffrey S.
  • Bhuyan, Sanjib
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    Abstract

    Firms may seek contractual alternatives to vertical integration in order to achieve transactional economies or adjust for market imperfections. Blair and Kaserman have shown that under fixed-proportions production technology. Firms within bilateral and successive monopoly market structures can use formula price contracts to achieve results economically equivalent to integration. This paper examines whether formula price contracts are a viable alternative to forward integration for farmer cooperatives. Analysis of a three-stage vertical market structure indicates that the conditions under which a cooperative assembler can use a formula price contract are more restrictive than those for an investor-owned firm.

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    Bibliographic Info

    Article provided by National Council of Farmer Cooperatives in its journal Journal of Agricultural Cooperation.

    Volume (Year): 8 (1993)
    Issue (Month): ()
    Pages:

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    Handle: RePEc:ags:joagco:46390

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    Keywords: Agribusiness;

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    1. Staatz, John M., 1989. "Farmer Cooperative Theory: Recent Developments," Research Reports 52017, United States Department of Agriculture, Rural Development Business and Cooperative Programs.
    2. Richard E. Caves & Bruce C. Petersen, 1986. "Cooperatives' shares in farm industries: Organizational and policy factors," Agribusiness, John Wiley & Sons, Ltd., vol. 2(1), pages 1-19.
    3. Richard J. Sexton, 1984. "Perspectives on the Development of the Economic Theory of Co-operatives," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 32(2), pages 423-436, 07.
    4. Rogers, Richard T. & Marion, Bruce W., 1990. "Food Manufacturing Activities of the Largest Agricultural Cooperatives: Market Power and Strategic Behavior Implications," Journal of Agricultural Cooperation, National Council of Farmer Cooperatives, vol. 5.
    5. Blair, Roger D & Kaserman, David L, 1987. "A Note on Bilateral Monopoly and Formula Price Contracts," American Economic Review, American Economic Association, vol. 77(3), pages 460-63, June.
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