IDEAS home Printed from https://ideas.repec.org/p/ags/aaea08/6082.html
   My bibliography  Save this paper

On the co-existence of spot and contract markets: an analysis of quality

Author

Listed:
  • Olmos, Marta Fernandez
  • Rosell-Martinez, Jorge
  • Espitia-Escuer, Manuel Antonio

Abstract

The possible co-existence of spot and contract market that can emerge in the presence of quality issues with a number of growers and processors in each stage is something that has largely remained an open question in the literature. This paper is an attempt to fill this void. We use a straightforward two-stage Cournot oligopoly model with specific demand and cost functions. In the first stage, processors decide simultaneously whether or not to set an incentive contract. The second stage is the stage in which growers choose their levels of quantity and quality based on the industry structure developed in the first stage. With the help of numerical simulations we conducted the study of the equilibrium structures. Our results suggest that for a wide range of number of participants in both markets, participation in both markets constitutes a Nash equilibrium for the model.

Suggested Citation

  • Olmos, Marta Fernandez & Rosell-Martinez, Jorge & Espitia-Escuer, Manuel Antonio, 2008. "On the co-existence of spot and contract markets: an analysis of quality," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6082, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea08:6082
    DOI: 10.22004/ag.econ.6082
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/6082/files/471927.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.6082?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. Tian Xia & Richard J. Sexton, 2004. "The Competitive Implications of Top-of-the-Market and Related Contract-Pricing Clauses," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 124-138.
    2. Brent Hueth & Ethan Ligon, 2001. "Agricultural Markets as Relative Performance Evaluation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(2), pages 318-328.
    3. Rachael E. Goodhue & Dale M. Heien & Hyunok Lee & Daniel A. Sumner, 2003. "Contracts and Quality in the California Winegrape Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 23(3_4), pages 267-282, December.
    4. Beard, T. Randolph & Thompson, Henry, 2003. "Duopoly quotas and relative import quality," International Review of Economics & Finance, Elsevier, vol. 12(2), pages 275-281.
    5. Allen, Douglas W & Lueck, Dean, 1999. "The Role of Risk in Contract Choice," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(3), pages 704-736, October.
    6. Brent Hueth & Ethan Ligon, 2002. "Estimation of an efficient tomato contract," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 29(2), pages 237-253, June.
    7. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    8. Brent Hueth & Ethan Ligon, 1999. "Producer Price Risk and Quality Measurement," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 512-524.
    9. Giraud-Heraud, Eric & Soler, Louis-Georges & Tanguy, Herve, 1999. "Avoiding Double Marginalisation in Agro-Food Chains," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 26(2), pages 179-198, June.
    10. Cook, Michael L. & Chaddad, Fabio R., 2000. "Agroindustrialization of the global agrifood economy: bridging development economics and agribusiness research," Agricultural Economics, Blackwell, vol. 23(3), pages 207-218, September.
    11. Jaumandreu, Jordi & Lorences, Joaquin, 2002. "Modelling price competition across many markets (An application to the Spanish loans market)," European Economic Review, Elsevier, vol. 46(1), pages 93-115, January.
    12. Timothy W. McGuire & Richard Staelin, 1983. "An Industry Equilibrium Analysis of Downstream Vertical Integration," Marketing Science, INFORMS, vol. 2(2), pages 161-191.
    13. Miguel Carriquiry & Bruce A. Babcock, 2002. "Can Spot and Contract Markets Co-Exist in Agriculture?," Center for Agricultural and Rural Development (CARD) Publications 02-wp311, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    14. Alexander, Corinne & Goodhue, Rachael E. & Rausser, Gordon C., 2007. "Do Incentives for Quality Matter?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 39(1), pages 1-15, April.
    15. George W. J. Hendrikse, 2007. "On the co-existence of spot and contract markets: the delivery requirement as contract externality," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 34(2), pages 257-282, June.
    16. Anne T. Coughlan, 1985. "Competition and Cooperation in Marketing Channel Choice: Theory and Application," Marketing Science, INFORMS, vol. 4(2), pages 110-129.
    Full references (including those not matched with items on IDEAS)

    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. Olmos, Marta Fernandez & Rosell-Martinez, Jorge & Espitia-Escuer, Manuel Antonio, 2008. "The yield/quality trade-off and contractual choice," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6065, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Olmos, Marta Fernández & Grazia, Cristina & Perito, Maria Angela, 2011. "Quality and Double Sided Moral Hazard in Share Contracts," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 12(1).
    3. Marta Fernández-Olmos & Jorge Rosell-Martínez & Manuel A. Espitia-Escuer, 2009. "Vertical integration in the wine industry: a transaction costs analysis on the Rioja DOCa," Agribusiness, John Wiley & Sons, Ltd., vol. 25(2), pages 231-250.
    4. Olmos, Marta Fernandez & Martinez, Jorge Rosell, 2011. "The Quality-Quantity Trade-off in the Principal-Agent Framework," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 11(1), pages 1-12, January.
    5. Tony Haitao Cui & Jagmohan S. Raju & Z. John Zhang, 2007. "Fairness and Channel Coordination," Management Science, INFORMS, vol. 53(8), pages 1303-1314, August.
    6. Mussell, Al, 2003. "PRICE DISCOVERY MECHANISMS AND ALTERNATIVES FOR CANADIAN AGRICULTURE; Part II: A Review of Pricing Mechanisms from the Economic Literature," Miscellaneous Publications 18100, George Morris Center.
    7. Michael Vassalos & Wuyang Hu & Timothy Woods & Jack Schieffer & Carl Dillon, 2016. "Risk Preferences, Transaction Costs, and Choice of Marketing Contracts: Evidence from a Choice Experiment with Fresh Vegetable Producers," Agribusiness, John Wiley & Sons, Ltd., vol. 32(3), pages 379-396, July.
    8. Fabio Caldieraro & Anne T. Coughlan, 2007. "Spiffed-Up Channels: The Role of Spiffs in Hierarchical Selling Organizations," Marketing Science, INFORMS, vol. 26(1), pages 31-51, 01-02.
    9. Yutaka ARIMOTO & Tetsuji OKAZAKI & Masaki NAKABAYASHI, 2010. "Agrarian Land Tenancy In Prewar Japan: Contract Choice And Implications On Productivity," The Developing Economies, Institute of Developing Economies, vol. 48(3), pages 293-318, September.
    10. Fraser, Iain, 2005. "Microeconometric analysis of wine grape supply contracts in Australia," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), pages 1-24.
    11. Li, Krista J. & Zhang, Jianqiang, 2021. "How does customer recognition affect service provision?," International Journal of Research in Marketing, Elsevier, vol. 38(4), pages 900-914.
    12. Irz, Xavier & Mazzocchi, Mario & Réquillart, Vincent & Soler, Louis-Georges, 2015. "Research in Food Economics: past trends and new challenges," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 96(01), pages 187-237, March.
    13. Araujo, Aloisio & Moreira, Humberto & Tsuchida, Marcos, 2007. "The Trade-Off Between Incentives and Endogenous Risk," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 27(2), November.
    14. Lin Liu & X. Henry Wang & Bill Z. Yang, 2012. "Strategic Choice of Channel Structure in an Oligopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 33(7-8), pages 565-574, October.
    15. Fukunaga, Keita & Hueth, Brent, 2006. "Contractual Externalities and Contract Design -Evidence from Farmland Lease Contracts in U.S. Agriculture," 2006 Annual meeting, July 23-26, Long Beach, CA 21368, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    16. Pradeep Bhardwaj, 2001. "Delegating Pricing Decisions," Marketing Science, INFORMS, vol. 20(2), pages 143-169, September.
    17. Huffman, Wallace E & Just, Richard E, 2004. "Implications of Agency Theory for Optimal Land Tenure Contracts," Economic Development and Cultural Change, University of Chicago Press, vol. 52(3), pages 617-642, April.
    18. Li, Bai-Xun & Zhou, Yong-Wu & Li, Ji-zi & Zhou, Shi-ping, 2013. "Contract choice game of supply chain competition at both manufacturer and retailer levels," International Journal of Production Economics, Elsevier, vol. 143(1), pages 188-197.
    19. Cao, Qingning & Geng, Xianjun & Zhang, Jun, 2015. "Strategic Role of Retailer Bundling in a Distribution Channel," Journal of Retailing, Elsevier, vol. 91(1), pages 50-67.
    20. Lee, Sunghee & Yoo, Shijin & Kim, Daeki, 2016. "When is servitization a profitable competitive strategy?," International Journal of Production Economics, Elsevier, vol. 173(C), pages 43-53.

    More about this item

    Keywords

    Marketing;

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:aaea08:6082. 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/aaeaaea.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.