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Have Indonesian Rubber Processors Formed a Cartel? Analysis of Intertemporal Marketing Margin Manipulation

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  • Kopp, Thomas
  • Alamsyah, Zulkifli
  • Fatricia, Raja Sharah
  • Brümmer, Bernhard

Abstract

In Indonesia the agricultural sector plays a key role for broad based economic development in rural areas. Rubber is one of the most important crops, and Indonesia is the second largest producer in the world. However, a high level of concentration in the processing industry limits the spread of the incoming wealth. In Jambi province on Sumatra, the strong market power of the crumb rubber factories is based on cartelization. This has tremendously negative welfare effects on the rural population, effects which are also likely to be relevant for many other provinces throughout Indonesia. For the society in general and policy makers specifically, it is essential to know about the extent of the whole issue. Thus we study the price transmission at these factories and assess their true market power. We make use of the non-parametric estimation technique of penalized splines in order to understand the error correcting process without having to make a priori assumptions about it. We then estimate an Auto-Regressive Asymmetric Threshold Error Correction Model to quantify both the extent of the threshold effect as well as the rents that are redistributed from the farmers to the factories. The analysis is based on daily price information from a period of four years (2009-2012). To the best of our knowledge, this is the first paper to quantify the additional distributional consequences of intertemporal marketing margin manipulation based on cartelistic market power.

Suggested Citation

  • Kopp, Thomas & Alamsyah, Zulkifli & Fatricia, Raja Sharah & Brümmer, Bernhard, 2014. "Have Indonesian Rubber Processors Formed a Cartel? Analysis of Intertemporal Marketing Margin Manipulation," EFForTS Discussion Paper Series 3, University of Goettingen, Collaborative Research Centre 990 "EFForTS, Ecological and Socioeconomic Functions of Tropical Lowland Rainforest Transformation Systems (Sumatra, Indonesia)".
    • Handle: RePEc:zbw:crc990:3
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    References listed on IDEAS

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    Cited by:

    1. Yvonne Kunz & Fenna Otten & Rina Mardiana & Katrin Martens & Imke Roedel & Heiko Faust, 2019. "Smallholder Telecoupling and Climate Governance in Jambi Province, Indonesia," Social Sciences, MDPI, vol. 8(4), pages 1-28, April.
    2. Klasen, Stephan & Meyer, Katrin M. & Dislich, Claudia & Euler, Michael & Faust, Heiko & Gatto, Marcel & Hettig, Elisabeth & Melati, Dian N. & Jaya, I. Nengah Surati & Otten, Fenna & Pérez-Cruzado, Cés, 2016. "Economic and ecological trade-offs of agricultural specialization at different spatial scales," Ecological Economics, Elsevier, vol. 122(C), pages 111-120.
    3. Kopp, Thomas & Bümmer, Bernhard, 2015. "Moving rubber to a better place - and extracting rents from credit constrained farmers along the way," EFForTS Discussion Paper Series 9, University of Goettingen, Collaborative Research Centre 990 "EFForTS, Ecological and Socioeconomic Functions of Tropical Lowland Rainforest Transformation Systems (Sumatra, Indonesia)".
    4. Krishna, Vijesh V. & Kubitza, Christoph & Pascual, Unai & Qaim, Matin, 2017. "Land markets, Property rights, and Deforestation: Insights from Indonesia," World Development, Elsevier, vol. 99(C), pages 335-349.
    5. Kopp, Thomas, 2017. "Bertrand Competition in Oligopsonistic Market Structures - the Case of the Indonesian Rubber Processing Sector," 57th Annual Conference, Weihenstephan, Germany, September 13-15, 2017 261980, German Association of Agricultural Economists (GEWISOLA).

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    Keywords

    intertemporal marketing margin manipulation; rubber cartel; Indonesia; asymmetric price transmission; threshold co-integration;
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