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More competitive than you think? Pricing and location of processing firms in agricultural markets

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  • Graubner, Marten
  • Sexton, Richard J.

Abstract

The spatial distribution of production is a defining characteristic of agriculture, and the location choice in geographic space and the spatial pricing policies adopted by agricultural processing/packing firms are key determinants of the competitiveness and efficiency of agricultural product procurement markets. Spatially distributed buying firms in the presence of costly transportation of farm products creates natural oligopsony procurement markets. Although several studies have contributed to our understanding of price and output determination and the distribution of welfare in these markets, all are limited in that they address buying firms' locations or their choices of spatial pricing strategy in isolation, holding the other factor fixed, even though both would be chosen jointly in reality to comprise a firm's product-procurement strategy. Here we overcome this limitation by using computational methods (including genetic algorithms) to study duopsony firms' joint choices of location and pricing policy. Our results differ considerably from those presented in prior literature. In general, we find that, when buyers have the flexibility to jointly choose their locations and pricing strategies, market outcomes are much more competitive and locations more efficient in terms of cost minimization than has been predicted by prior studies viewing location choice or pricing strategy in isolation.

Suggested Citation

  • Graubner, Marten & Sexton, Richard J., 2023. "More competitive than you think? Pricing and location of processing firms in agricultural markets," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 105(3), pages 784-808.
    • Handle: RePEc:zbw:espost:270761
    DOI: 10.1111/ajae.12336
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    More about this item

    Keywords

    genetic algorithm; oligopsony; price discrimination; spatial competition;
    All these keywords.

    JEL classification:

    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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