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Retail and Wholesale Market Power in Organic Foods

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  • Richards, Timothy J.
  • Acharya, Ram N.
  • 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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Bibliographic 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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References

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  2. Timothy Richards & Paul Patterson, 2005. "Sales Promotion and Cooperative Retail Pricing Strategies," Review of Industrial Organization, Springer, vol. 26(4), pages 391-413, 06.
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  6. Inderst, Roman & Shaffer, Greg, 2004. "Retail Mergers: Buyer Power and Product Variety," CEPR Discussion Papers 4236, C.E.P.R. Discussion Papers.
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Cited by:
  1. Moro, Daniele & Paolo, Sckokai & Veneziani, Mario, 2012. "Multi-stage Market Power in the Italian Fresh Meat Industry," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125065, Agricultural and Applied Economics Association.

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