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Trade Reform with Vertically-Related Markets

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  • McCorriston, Steve
  • Sheldon, Ian M.

Abstract

Most policy analysis in agricultural economics typically ignores the existence of the food processing, distribution and retail sectors. If these sectors were perfectly competitive, their exclusion would not significantly affect the welfare changes following policy reform. However, since these sectors are typically imperfectly competitive, excluding them does matter. In a theoretical model of a vertically-related food market, this paper shows that welfare changes of policy reform are lower than the 'perfectly competitive' case since there is imperfect pass-through of price changes occurring at the farm-gate. The model shows that the pass-through effects depend on the nature of strategic interaction in the food market, and the degree of product differentiation of the final food products. The theoretical model is applied to the recently proposed changes to the European Community (EC) banana regime, a sector characterized by the existence of a few large firms.

Suggested Citation

  • McCorriston, Steve & Sheldon, Ian M., 1993. "Trade Reform with Vertically-Related Markets," Occasional Papers 233156, Regional Research Project NC-194: Organization and Performance of World Food Systems.
    • Handle: RePEc:ags:nc194o:233156
    DOI: 10.22004/ag.econ.233156
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    File URL: https://ageconsearch.umn.edu/record/233156/files/nc194-op-49.pdf
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    References listed on IDEAS

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    1. Tyers,Rod & Anderson,Kym, 2011. "Disarray in World Food Markets," Cambridge Books, Cambridge University Press, number 9780521172318.
    2. Bruce L. Gardner, 1975. "The Farm-Retail Price Spread in a Competitive Food Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 57(3), pages 399-409.
    3. Greenhut, M L & Ohta, H, 1979. "Vertical Integration of Successive Oligopolists," American Economic Review, American Economic Association, vol. 69(1), pages 137-141, March.
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    5. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    6. Cheng, Leonard K, 1988. "Assisting Domestic Industries under International Oligopoly: The Relevance of the Nature of Competition to Optimal Policies," American Economic Review, American Economic Association, vol. 78(4), pages 746-758, September.
    7. Colman, David, 1985. "Imperfect Transmission of Policy Prices," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 12(3), pages 171-186.
    8. Roningen, Vernon O. & Dixit, Praveen M., 1990. "Assessing the implications of freer agricultural trade," Food Policy, Elsevier, vol. 15(1), pages 67-75, February.
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    Cited by:

    1. Alexandre Gohin & Hervé Guyomard, 2000. "Measuring Market Power for Food Retail Activities: French Evidence," Journal of Agricultural Economics, Wiley Blackwell, vol. 51(2), pages 181-195, May.
    2. Deodhar, Satish Y. & Fletcher, Stanley M., 1998. "Degree Of Competition In The U.S. Peanut Butter Industry: A Dynamic Error Correction Approach," Faculty Series 16725, University of Georgia, Department of Agricultural and Applied Economics.

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