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Components of the wholesale bid‐ask spread and the structure of grain markets: the case of rice in India

Author

Listed:
  • Raghbendra Jha
  • K.V.B. Murthy
  • Hari K. Nagarajan
  • Ashok Seth

Abstract

We investigate the market microstructure of the wholesale markets for rice in India. We propose a general method of splitting the wholesale bid‐ask spread into its three constituent components: the order processing costs, the adverse information costs and the inventory holding costs. The bid‐ask spread reflects the extent of information asymmetry and order imbalance in the market place. However, the dynamics of the bid‐ask spread can only be understood in terms of the movement of its components; hence the importance of isolating these components. We use Zellner's seemingly unrelated regressions to split the bid‐ask spread into the three components in the rice markets of 14 major centers in India. The results are then linked to the production and consumption patterns in the market areas covered by these centers.

Suggested Citation

  • Raghbendra Jha & K.V.B. Murthy & Hari K. Nagarajan & Ashok Seth, 1999. "Components of the wholesale bid‐ask spread and the structure of grain markets: the case of rice in India," Agricultural Economics, International Association of Agricultural Economists, vol. 21(2), pages 173-189, October.
    • Handle: RePEc:bla:agecon:v:21:y:1999:i:2:p:173-189
    DOI: 10.1111/j.1574-0862.1999.tb00592.x
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    Cited by:

    1. Raghbendra Jha & Hari K. Nagarajan, 2002. "Noisy Vertical Markets," ASARC Working Papers 2002-04, The Australian National University, Australia South Asia Research Centre.
    2. Aritra Pan & Arun Kumar Misra & David McMillan, 2021. "A comprehensive study on bid-ask spread and its determinants in India," Cogent Economics & Finance, Taylor & Francis Journals, vol. 9(1), pages 1898735-189, January.
    3. Aritra Pan & Arun Kumar Misra, 2022. "Assessment of Asymmetric Information Cost in Indian Stock Market: A Sectoral Approach," Global Business Review, International Management Institute, vol. 23(2), pages 512-535, April.
    4. A Banerji & J.V. Meenakshi, 2010. "Competition and Collusion in Grain Markets: Basmati Auctions in North India," Working Papers id:2701, eSocialSciences.

    More about this item

    JEL classification:

    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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