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Retail and Wholesale Market Power in Organic Foods

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Author Info
Richards, Timothy J.
Acharya, Ram
Molina, Ignacio
Abstract

The demand for organic fresh fruits and vegetable continues to grow at a rate far higher than the rest of the produce industry. The cost of meeting organic certification standards, however, has meant that supply has been slow to adjust. With limited supply, we hypothesize that organic suppliers enjoy more market power in bargaining over their share of the retail-production cost margin for fresh apples. We test this hypothesis using a random parameters, generalized extreme value demand model (mixed logit) combined with a structural model of retail and wholesale pricing that allows conduct to vary by product attributes (organic or non-organic) and time. We find that organic growers do indeed earn a larger share of the total margin than non-organic growers, but this vertical market power is eroding over time as market supply adjusts.

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Publisher Info
Paper provided by Agricultural and Applied Economics Association in its series 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin with number 49329.

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Date of creation: 2009
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Handle: RePEc:ags:aaea09:49329

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Related research
Keywords: organics; market power; mixed logit; game theory; non-linear pricing.; Industrial Organization; C35; D12; D43; L13; L41; Q13.;

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  2. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Blackwell Publishing, vol. 74(2), pages 625-652, 04. [Downloadable!] (restricted)
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  4. K. Sudhir & Vrinda Kadiyali & Vithala R. Rao, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Yale School of Management Working Papers ysm229, Yale School of Management. [Downloadable!]
  5. Nair, Harikesh S. & Dube, Jean-Pierre & Chintagunta, Pradeep, 2004. "Accounting for Primary and Secondary Demand Effects with Aggregate Data," Research Papers 1949, Stanford University, Graduate School of Business. [Downloadable!]
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This page was last updated on 2009-12-26.

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