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Agricultural Support Policies in Imperfectly Competitive Markets: Why Market Power Matters in Policy Design

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  • Carlo Russo
  • Rachael E. Goodhue
  • Richard J. Sexton

Abstract

Most agricultural policy analysis assumes that markets are perfectly competitive, despite increasing evidence to the contrary. We demonstrate that the interaction of market power and government intervention may lead to outcomes that are counter to key results of policy analysis for perfectly competitive markets. We show that market power may reduce or eliminate entirely the net welfare benefits from removing two traditional support mechanisms, price floors and deficiency payments, and may increase considerably the government's cost of implementing either of them. Accordingly, optimally designed price support measures may improve welfare in the presence of downstream oligopoly and/or oligopsony power. Copyright 2011, Oxford University Press.

Suggested Citation

  • Carlo Russo & Rachael E. Goodhue & Richard J. Sexton, 2011. "Agricultural Support Policies in Imperfectly Competitive Markets: Why Market Power Matters in Policy Design," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(5), pages 1328-1340.
    • Handle: RePEc:oup:ajagec:v:93:y:2011:i:5:p:1328-1340
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    File URL: http://hdl.handle.net/10.1093/ajae/aar050
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    Cited by:

    1. Hasan Arisoy, 2020. "Impact of agricultural supports on competitiveness of agricultural products," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 66(6), pages 286-295.
    2. Lukáš Čechura & Tinoush Jamali Jaghdani, 2021. "Market Imperfections within the European Wheat Value Chain: The Case of France and the United Kingdom," Agriculture, MDPI, vol. 11(9), pages 1-21, August.
    3. Wagener, Andreas & Zenker, Juliane, 2018. "Decoupled but not neutral: The effects of stochastic transfers on investment and incomes in rural Thailand," TVSEP Working Papers wp-008, Leibniz Universitaet Hannover, Institute of Development and Agricultural Economics, Project TVSEP.
    4. Kai Zhao & Wanshu Wu, 2022. "Innovation of Family-Owned Enterprises and Government Subsidies: From A Policy-Oriented Perspective," Sustainability, MDPI, vol. 14(20), pages 1-18, October.
    5. Andreas Wagener & Juliane Zenker, 2021. "Decoupled but Not Neutral: The Effects of Counter‐Cyclical Cash Transfers on Investment and Incomes in Rural Thailand†," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(5), pages 1637-1660, October.
    6. Kaittisak Kumse & Nobuhiro Suzuki & Takeshi Sato, 2020. "Does oligopsony power matter in price support policy design? Empirical evidence from the Thai Jasmine rice market," Agricultural Economics, International Association of Agricultural Economists, vol. 51(3), pages 373-385, May.
    7. Hauck, Zsuzsanna & Rabta, Boualem & Reiner, Gerald, 2023. "Coordinating quality decisions in a two-stage supply chain under buyer dominance," International Journal of Production Economics, Elsevier, vol. 264(C).
    8. Abby Kelly & Kalyn T. Coatney & Xiaofei Li & Keith H. Coble, 2020. "Subsidy Incidence in the Presence of Bertrand Suppliers of Complementary Inputs: A U.S. Agricultural Example," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 479-501, September.
    9. Poe, Abby & Coatney, Kalyn & Coble, Keith & Freeman, Matt, 2014. "Farm Subsidy Incidence in the Presence of Bertrand Competitors of Complementary Factors of Production: A Theoretical Approach," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162507, Southern Agricultural Economics Association.
    10. Beatriz Velázquez & Bruno Buffaria, 2017. "About farmers’ bargaining power within the new CAP," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 5(1), pages 1-13, December.
    11. Čechura, Lukáš & Jamali Jaghdani, Tinoush, 2021. "Market imperfections within the European wheat value chain: The case of France and the United Kingdom," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 11(9).
    12. Alessandro Bonanno & Carlo Russo & Luisa Menapace, 2018. "Market power and bargaining in agrifood markets: A review of emerging topics and tools," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 6-23, December.
    13. Boyd, Chris M., 2020. "Urgent Yet Ineffective? The Welfare Impacts of Potato Price Stabilization in Peru," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304293, Agricultural and Applied Economics Association.
    14. McCorriston, Steve & MacLaren, Donald, 2016. "Parastatals as instruments of government policy: The Food Corporation of India," Food Policy, Elsevier, vol. 65(C), pages 53-62.
    15. Anubhab Gupta & Justin Kagin & J Edward Taylor & Mateusz Filipski & Lindi Hlanze & James Foster, 2018. "Is technology change good for cotton farmers? A local-economy analysis from the Tanzania Lake Zone," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 45(1), pages 27-56.

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