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Buyer and Seller Concentration in Global Commodity Markets

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  • Reza Oladi
  • John Gilbert

Abstract

Commodity markets may be characterized by concentration on the buyer side, with a small number of transnational intermediary firms purchasing from supplying countries and distributing to the market. In many cases, developing economies may have little choice but to sell through these intermediaries, and recent work has suggested the export taxes may be an optimal policy to recapture some of the monopsony rent. However, in many commodity markets there are a limited number of large supplying countries. Even if the markets are competitive, this supply-side concentration suggests that economies have market power themselves, and that the governments of the countries may be engaged in a strategic game when selecting trade policies. We consider a situation where an oligopsonistic intermediary industry purchases from a small number of supplying countries, the governments of which act strategically in their policy choices both with respect to the intermediaries and any competing suppliers. In the resulting two-stage game, we show that an export subsidy may arise as the optimal intervention.
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Suggested Citation

  • Reza Oladi & John Gilbert, 2012. "Buyer and Seller Concentration in Global Commodity Markets," Review of Development Economics, Wiley Blackwell, vol. 16(2), pages 359-367, May.
  • Handle: RePEc:bla:rdevec:v:16:y:2012:i:2:p:359-367 DOI: j.1467-9361.2012.00667.x
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    References listed on IDEAS

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    1. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Journal of Industry, Competition and Trade, Springer, pages 31-52.
    2. Ngo, Van Long & Soubeyran, Antoine, 1997. "Cost heterogeneity, industry concentration and strategic trade policies," Journal of International Economics, Elsevier, pages 207-220.
    3. De Santis, Roberto A, 2000. "Optimal Export Taxes, Welfare, Industry Concentration, and Firm Size: A General Equilibrium Analysis," Review of International Economics, Wiley Blackwell, pages 319-335.
    4. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, pages 83-100.
    5. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
    6. Ngo, Van Long & Soubeyran, Antoine, 1997. "Cost heterogeneity, industry concentration and strategic trade policies," Journal of International Economics, Elsevier, pages 207-220.
    7. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Experimental Economics, Springer;Economic Science Association, vol. 7(1), pages 31-52, March.
    8. Alan V. Deardorff & Indira Rajaraman, 2009. "Buyer Concentration in Markets for Developing Country Exports," Review of Development Economics, Wiley Blackwell, pages 190-199.
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    Cited by:

    1. Jota Ishikawa & Nori Tarui, 2015. "Backfiring with backhaul problems: Trade and Industrial Policies with Endogenous Transport Costs," Working Papers 201514, University of Hawaii at Manoa, Department of Economics.
    2. Pio Baake & Steffen Huck, 2013. "Crop Failures and Export Tariffs," Discussion Papers of DIW Berlin 1342, DIW Berlin, German Institute for Economic Research.

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    JEL classification:

    • F1 - International Economics - - Trade

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