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Millers, Commission Agents and Collusion in Grain Auction Markets: Evidence from Basmati Auctions in North India

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  • A. BANERJI

    (Delhi School of Economics)

  • J. V. MEENAKSHI

    (Delhi School of Economics)

Abstract

This paper undertakes structural estimation of asymmetric auction models in a market for basmati, and detects the presence of a cartel consisting of a large (in market share) local miller and commission agents purchasing for large distant millers. The contracts between the distant millers and their commission agents help to explain the specific form that collusion takes. Simulations indicate that (i) the cartel gains considerably by colluding, over the competitive outcome; (ii) however, sellers (farmers) do not lose significantly under collusion when the commission agents bid; (iii) a knowledgeable auctioneer would choose much higher starting prices for auctions when commission agents bid, compared with the observed starting prices. The paper also shows that efficient collusion, the form of collusion commonly assumed in the literature, does not explain the data well.

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Bibliographic Info

Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 129.

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Length: 34 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:cde:cdewps:129

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Keywords: Auctions; Cartels; Agricultural Markets.;

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References

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  1. Paarsch, Harry J., 1992. "Deciding between the common and private value paradigms in empirical models of auctions," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 191-215.
  2. Mireia Jofre-Bonet & Martin Pesendorfer, 2001. "Estimation of a Dynamic Auction Game," NBER Working Papers 8626, National Bureau of Economic Research, Inc.
  3. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
  4. Skrzypacz, Andrzej & Hopenhayn, Hugo, 2004. "Tacit collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 114(1), pages 153-169, January.
  5. Rob Porter, 1999. "Empirical Implications of Equilibrium Bidding in First-Price, Symmetric, Common Value Auctions," Working papers 99-19, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Patrick Bajari & Ali Hortacsu, 2005. "Are Structural Estimates of Auction Models Reasonable? Evidence from Experimental Data," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 703-741, August.
  7. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
  8. Hong, Han & Shum, Matthew, 2003. "Econometric models of asymmetric ascending auctions," Journal of Econometrics, Elsevier, vol. 112(2), pages 327-358, February.
  9. Kenneth HENDRICKS & Robert H. PORTER, 1989. "Collusion in Auctions," Annales d'Economie et de Statistique, ENSAE, issue 15-16, pages 217-230.
  10. Athey,S. & Haile,P.A., 2000. "Identification of standard auction models," Working papers 13, Wisconsin Madison - Social Systems.
  11. Donald, Stephen G. & Paarsch, Harry J., 1996. "Identification, Estimation, and Testing in Parametric Empirical Models of Auctions within the Independent Private Values Paradigm," Econometric Theory, Cambridge University Press, vol. 12(03), pages 517-567, August.
  12. Laffont & Ossard & Vuong, 1995. "Econometrics of first-price auctions," Working Papers 153731, Institut National de la Recherche Agronomique, France.
  13. Graham, Daniel A & Marshall, Robert C, 1987. "Collusive Bidder Behavior at Single-Object Second-Price and English Auctions," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1217-39, December.
  14. repec:cup:etheor:v:12:y:1996:i:3:p:517-67 is not listed on IDEAS
  15. Marshall, R.C. & Richard J.F., 1995. "Bider Collusion at Forest Service Timber Sales," Papers 7-95-3, Pennsylvania State - Department of Economics.
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Citations

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Cited by:
  1. Aparajita Goyal, 2010. "Information, Direct Access to Farmers, and Rural Market Performance in Central India," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 22-45, July.
  2. Meenakshi, J.V. & Banerji, A., 2005. "The unsupportable support price: an analysis of collusion and government intervention in paddy auction markets in North India," Journal of Development Economics, Elsevier, vol. 76(2), pages 377-403, April.

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