IDEAS home Printed from https://ideas.repec.org/a/ags/jlaare/42457.html
   My bibliography  Save this article

Market Power in the Corn Sector: How Does It Affect the Impacts of the Ethanol Subsidy?

Author

Listed:
  • Saitone, Tina L.
  • Sexton, Richard J.
  • Sexton, Steven E.

Abstract

Market power is discussed in debates about subsidies for ethanol production. The structural conditions in the corn industry create a case for concerns about market power. We develop an analytical model for determining the production and price impacts and the distribution of benefits from the U.S ethanol subsidy when upstream sellers in the seed sector and downstream buyers in the processing sector may exercise market power. Results demonstrate that the impacts on prices and output are probably limited. Distribution impacts are much greater. Seed producers and corn processors with market power capture relatively large shares of subsidy benefits.

Suggested Citation

  • Saitone, Tina L. & Sexton, Richard J. & Sexton, Steven E., 2008. "Market Power in the Corn Sector: How Does It Affect the Impacts of the Ethanol Subsidy?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 33(2), pages 1-26.
    • Handle: RePEc:ags:jlaare:42457
    DOI: 10.22004/ag.econ.42457
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/42457/files/SaitoneSexton2.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.42457?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Richard J. Rosen, 1991. "Research and Development with Asymmetric Firm Sizes," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 411-429, Autumn.
    2. Giancarlo Moschini & Harvey Lapan, 1997. "Intellectual Property Rights and the Welfare Effects of Agricultural R&D," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1229-1242.
    3. Shalit, Haim & Yitzhaki, Shlomo, 2002. "Estimating Beta," Review of Quantitative Finance and Accounting, Springer, vol. 18(2), pages 95-118, March.
    4. Foreman, Linda F., 2006. "Characteristics and Production Costs of U.S. Corn Farms, 2001," Economic Information Bulletin 7205, United States Department of Agriculture, Economic Research Service.
    5. Habtu Tadesse Weldegebriel, 2004. "Imperfect Price Transmission: Is Market Power Really to Blame?," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(1), pages 101-114, March.
    6. M. Bronfenbrenner, 1961. "Notes On The Elasticity Of Derived Demand," Oxford Economic Papers, Oxford University Press, vol. 13(3), pages 254-261.
    7. Sexton, Richard J. & Lavoie, Nathalie, 2001. "Food processing and distribution: An industrial organization approach," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 15, pages 863-932, Elsevier.
    8. Taheripour, Farzad & Tyner, Wallace E., 2007. "Ethanol Subsidies, Who Gets the Benefits?," Biofuels, Food and Feed Tradeoffs Conference, April 12-13, 2007, St, Louis, Missouri 313702, Farm Foundation.
    9. Mingxia Zhang, 1997. "The Effects of Imperfect Competition on the Size and Distribution of Research Benefits," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1252-1265.
    10. Schmitz Andrew & Moss Charles B. & Schmitz Troy G., 2007. "Ethanol: No Free Lunch," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 5(2), pages 1-28, December.
    11. Tyner, Wallace E. & Taheripour, Farzad, 2007. "Future Biofuels Policy Alternatives," Biofuels, Food and Feed Tradeoffs Conference, April 12-13, 2007, St, Louis, Missouri 313694, Farm Foundation.
    12. Shu-Yu Huang & Richard J. Sexton, 1996. "Measuring Returns to an Innovation in an Imperfectly Competitive Market: Application to Mechanical Harvesting of Processing Tomatoes in Taiwan," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 558-571.
    13. Holt, Matthew T & Johnson, Stanley R, 1989. "Bounded Price Variation and Rational Expectations in an Endogenous Switching Model of the U.S. Corn Market," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 605-613, November.
    14. Richard J. Sexton, 2000. "Industrialization and Consolidation in the U.S. Food Sector: Implications for Competition and Welfare," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(5), pages 1087-1104.
    15. Thaeripour, Farzad & Tyner, Wallace E., 2007. "Ethanol subsidies, Who gets the benefits?," Biofuels, Food and Feed Tradeoffs Conference, April 12-13, 2007, St, Louis, Missouri 48776, Farm Foundation.
    16. Gardner Bruce, 2007. "Fuel Ethanol Subsidies and Farm Price Support," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 5(2), pages 1-22, December.
    17. Richard J. Sexton & Ian Sheldon & Steve McCorriston & Humei Wang, 2007. "Agricultural trade liberalization and economic development: the role of downstream market power," Agricultural Economics, International Association of Agricultural Economists, vol. 36(2), pages 253-270, March.
    18. Rafi Melnick & Haim Shalit, 1985. "Estimating the Market for Tomatoes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(3), pages 573-582.
    19. Steve McCorriston, 2002. "Why should imperfect competition matter to agricultural economists?," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 29(3), pages 349-371, July.
    20. Tyner, Wallace E. & Thaeripour, Farzad, 2007. "Future biofuels policy alternatives," Biofuels, Food and Feed Tradeoffs Conference, April 12-13, 2007, St, Louis, Missouri 48777, Farm Foundation.
    21. Shonkwiler, J S & Maddala, G S, 1985. "Modeling Expectations of Bounded Prices: An Application to the Market for Corn," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 697-702, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ciaian, Pavel & Kancs, d'Artis, 2011. "Food, energy and environment: Is bioenergy the missing link?," Food Policy, Elsevier, vol. 36(5), pages 571-580, October.
    2. Abby Kelly & Kalyn T. Coatney & Xiaofei Li & Keith H. Coble, 2020. "Subsidy Incidence in the Presence of Bertrand Suppliers of Complementary Inputs: A U.S. Agricultural Example," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 479-501, September.
    3. Pavel Ciaian & Edoardo Baldoni & d'Artis Kancs & Dušan Drabik, 2021. "The Capitalization of Agricultural Subsidies into Land Prices," Annual Review of Resource Economics, Annual Reviews, vol. 13(1), pages 17-38, October.
    4. Çakır, Metin & Nolan, James, 2015. "Revisiting Concentration in Food and Agricultural Supply Chains: The Welfare Implications of Market Power in a Complementary Input Sector," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(2), pages 1-17, May.
    5. Poe, Abby & Coatney, Kalyn & Coble, Keith & Freeman, Matt, 2014. "Farm Subsidy Incidence in the Presence of Bertrand Competitors of Complementary Factors of Production: A Theoretical Approach," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162507, Southern Agricultural Economics Association.
    6. Tepe, Fatma Sine, 2010. "Biofuel policy and stock price in imperfectly competitive markets," ISU General Staff Papers 201001010800002642, Iowa State University, Department of Economics.
    7. Mélanie Jaeck & Robert Lifran & Hubert Stahn, 2012. "Emergence of Organic Farming under Imperfect Competition: Economic Conditions and Incentives," Working Papers hal-02805961, HAL.
    8. Karel Janda & Ladislav Kristoufek, 2019. "The Relationship Between Fuel and Food Prices: Methods, Outcomes, and Lessons for Commodity Price Risk Management," CAMA Working Papers 2019-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    9. Yanbing Wang & Michael S. Delgado & Juan Sesmero & Benjamin M. Gramig, 2020. "Market Structure and the Local Effects of Ethanol Expansion on Land Allocation: A Spatially Explicit Analysis," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(5), pages 1598-1622, October.
    10. Mélanie Jaeck & Robert Lifran & Hubert Stahn, 2012. "Emergence of Organic Farming under Imperfect Competition," AMSE Working Papers 1239, Aix-Marseille School of Economics, France.
    11. Ciaian, Pavel & Kancs, d'Artis, 2011. "Interdependencies in the energy-bioenergy-food price systems: A cointegration analysis," Resource and Energy Economics, Elsevier, vol. 33(1), pages 326-348, January.
    12. repec:ags:aaea22:335864 is not listed on IDEAS
    13. Swanson, Andrew C., 2022. "Corn, Carbon, and Competition: The Low Carbon Fuel Standard's Effects on Imperfectly Competitive Corn Markets," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322442, Agricultural and Applied Economics Association.
    14. Jung, Jinho & Sesmero, Juan Pablo & Balagtas, Joseph V., "undated". "Market Power in Feedstock Procurement and Economic Effects of Corn Ethanol," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258544, Agricultural and Applied Economics Association.
    15. Qiu, Cheng & Colson, Gregory & Wetzstein, Michael, 2014. "An ethanol blend wall shift is prone to increase petroleum gasoline demand," Energy Economics, Elsevier, vol. 44(C), pages 160-165.
    16. Karel Janda & Ladislav Krištoufek, 2019. "The Relationship Between Fuel and Food Prices: Methods and Outcomes," Annual Review of Resource Economics, Annual Reviews, vol. 11(1), pages 195-216, October.
    17. Thomas Kopp, 2022. "When switching costs cause market power: Rubber processing in Indonesia," Agricultural Economics, International Association of Agricultural Economists, vol. 53(3), pages 481-495, May.
    18. Swanson, Andrew C., 2024. "To Dry or Not To Dry: The Pass-Through of LCFS Subsidies to Distillers Grain Prices," 2024 Annual Meeting, July 28-30, New Orleans, LA 344074, Agricultural and Applied Economics Association.
    19. Zhengyi Dong, 2019. "Does the Development of Bioenergy Exacerbate the Price Increase of Maize?," Sustainability, MDPI, vol. 11(18), pages 1-16, September.
    20. Jinho Jung & Juan Sesmero & Ralph Siebert, 2022. "A structural estimation of spatial differentiation and market power in input procurement," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(2), pages 613-644, March.
    21. May, Daniel E., 2013. "PR - Export Instability When International Agricultural Markets Operate Under Oligopoly," 19th Congress, Warsaw, Poland, 2013 345682, International Farm Management Association.
    22. Jaeck Mélanie & Lifran Robert & Stahn Hubert, 2014. "Emergence of Organic Farming under Imperfect Competition: Economic Conditions and Policy Instruments," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 12(1), pages 95-108, January.
    23. Saitone Tina L & Sexton Richard J., 2009. "A Flexible Oligopoly-Oligopsony Model for Classroom Simulations and Policy Analyses," Journal of Industrial Organization Education, De Gruyter, vol. 4(1), pages 1-16, March.
    24. Serra, Teresa & Zilberman, David, 2013. "Biofuel-related price transmission literature: A review," Energy Economics, Elsevier, vol. 37(C), pages 141-151.
    25. Jinho Jung & Juan Sesmero & Ralph Siebert, 2020. "Spatial Differentiation and Market Power in Input Procurement: Evidence from a Structural Model of the Corn Market," CESifo Working Paper Series 8088, CESifo.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sexton, Richard J. & Sheldon, Ian M. & McCorriston, Steve & Wang, Humei, 2004. "Analyzing Vertical Market Structure And Its Implications For Trade Liberalization," 2004 Annual meeting, August 1-4, Denver, CO 20060, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. David M. McEvoy & Sylvia Brandt & Sven Anders, 2009. "The Effects of ITQ Management on Fishermen’s Welfare When the Processing Sector Is Imperfectly Competitive," Land Economics, University of Wisconsin Press, vol. 85(3), pages 470-484.
    3. Çakır, Metin & Nolan, James, 2015. "Revisiting Concentration in Food and Agricultural Supply Chains: The Welfare Implications of Market Power in a Complementary Input Sector," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(2), pages 1-17, May.
    4. Sheldon, Ian M., 2017. "The Competitiveness Of Agricultural Product And Input Markets: A Review And Synthesis Of Recent Research," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 49(1), pages 1-44, February.
    5. Du, Xiaodong, 2008. "Essays on land cash rents, biofuels, and their interactions," ISU General Staff Papers 200801010800001979, Iowa State University, Department of Economics.
    6. repec:ags:ijag24:347272 is not listed on IDEAS
    7. Tian Xia & Brian Sancewich, 2018. "Interaction between buyer power in agricultural procurement and seller power in food retailing, and optimal allocation of anti-trust efforts," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 6(1), pages 1-19, December.
    8. Jan Falkowski & Pavel Ciaian, 2016. "Factors Supporting the Development of Producer Organizations and their Impacts in the Light of Ongoing Changes in Food Supply Chains: A Literature Review," JRC Research Reports JRC101617, Joint Research Centre.
    9. Alessandro Bonanno & Carlo Russo & Luisa Menapace, 2018. "Market power and bargaining in agrifood markets: A review of emerging topics and tools," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 6-23, December.
    10. Sparks, G.D. & Ortmann, G.F., 2011. "Global biofuel policies: A review," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 50(2), September.
    11. Ian M. Sheldon, 2021. "Reflections on a Career as an Industrial Organization and International Economist," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(2), pages 468-499, June.
    12. Daphne M.I. Verreth & Grigorios Emvalomatis & Frank Bunte & Ron Kemp & Alfons G.J.M. Oude Lansink, 2015. "Price Transmission, International Trade, and Asymmetric Relationships in the Dutch Agri‐Food Chain," Agribusiness, John Wiley & Sons, Ltd., vol. 31(4), pages 521-542, October.
    13. Lukáš Čechura & Tinoush Jamali Jaghdani, 2021. "Market Imperfections within the European Wheat Value Chain: The Case of France and the United Kingdom," Agriculture, MDPI, vol. 11(9), pages 1-21, August.
    14. Bakucs, Lajos Zoltán & Fertő, Imre & Hockmann, Heinrich & Perekhozhuk, Oleksandr, 2009. "Market power on the edge? An analysis of the German and Hungarian hog markets," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 58(8), pages 337-345.
    15. Dries Maes & Mark Vancauteren & Steven Passel, 2019. "Investigating market power in the Belgian pork production chain," Review of Agricultural, Food and Environmental Studies, Springer, vol. 100(1), pages 93-117, December.
    16. Byeong‐Il Ahn & Hyunok Lee, 2010. "An equilibrium displacement approach to oligopoly market analysis: an application to trade in the Korean infant formula market," Agricultural Economics, International Association of Agricultural Economists, vol. 41(2), pages 101-109, March.
    17. Dries Maes & Mark Vancauteren & Steven Van Passel, 2019. "Investigating market power in the Belgian porkproduction chain," Review of Agricultural, Food and Environmental Studies, INRA Department of Economics, vol. 100(1-4), pages 93-117.
    18. Jeon, Sang-Gon, 2008. "Estimation of Political Oligopoly Power of Domestic Producers in the Korean Raw-Milk Market," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 31(5), pages 1-23, November.
    19. Castiblanco, Carmenza & Moreno, Alvaro & Etter, Andrés, 2015. "Impact of policies and subsidies in agribusiness: The case of oil palm and biofuels in Colombia," Energy Economics, Elsevier, vol. 49(C), pages 676-686.
    20. Fulton, Murray E. & Keyowski, Lynette, 2000. "The Impact Of Technological Innovation On Producer Returns: The Case Of Genetically Modified Canola," Transitions in Agbiotech: Economics of Strategy and Policy, June 24-25, 1999, Washington, D.C. 25998, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
    21. James F. Oehmke & Dave D. Weatherspoon & Christopher A. Wolf & Anwar Naseem & Mywish Maredia & Amie Hightower, 2000. "Is agricultural research still a public good?," Agribusiness, John Wiley & Sons, Ltd., vol. 16(1), pages 68-81.

    More about this item

    Keywords

    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:jlaare:42457. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/waeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.