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The Long Run and Short Run Impact of Captive Supplies on the Spot Market Price: An Agent-Based Artificial Market

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  • Zhang, Tong
  • Brorsen, B. Wade

Abstract

This paper seeks to reduce the gap between theoretical research that shows a potentially large price-depressing effect of captive supplies and empirical work that finds any pricedepressing effect of captive supplies is small. An agent-based model is developed that matches the results of Xia and Sexton (2004) as well as our generalization of their model. We relax Xia and Sexton’s (2004) assumption of no supply response by captive feeders, which reduces the price depressing effect of captive supplies. Finally, the agent-based model is used to simulate packers choosing both captive supply quantities and spot market quantities. Packers in the relaxed agent-based model choose no captive supplies and thus reach the Cournot solution. The research narrows the gap between theoretical models and the empirical work on captive supplies that shows little effect on prices, but a gap remains.

Suggested Citation

  • Zhang, Tong & Brorsen, B. Wade, 2010. "The Long Run and Short Run Impact of Captive Supplies on the Spot Market Price: An Agent-Based Artificial Market," 2010 Conference, April 19-20, 2010, St. Louis, Missouri 285324, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:nccc10:285324
    DOI: 10.22004/ag.econ.285324
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    2. Tong Zhang & B. Brorsen, 2011. "Oligopoly firms with quantity-price strategic decisions," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 6(2), pages 157-170, November.
    3. Hadachek, Jeffrey & Saitone, Tina L. & Sexton, Richard J. & Raszap Skorbiansky, Sharon & Thornsbury, Suzanne & Effland, Anne, "undated". "Organic Feed Grains and Livestock: Factors That Influence Outcomes in Thinly Traded Markets," USDA Miscellaneous 319355, United States Department of Agriculture.
    4. Christopher C. Pudenz & Lee L. Schulz, 2024. "Multi‐plant coordination in the U.S. beef packing industry," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(1), pages 382-415, January.
    5. Christopher Boyer & B. Brorsen, 2014. "Implications of a Reserve Price in an Agent-Based Common-Value Auction," Computational Economics, Springer;Society for Computational Economics, vol. 43(1), pages 33-51, January.
    6. Hildebrand, Kayla & Chung, Chinjin, 2023. "Selectivity Bias and Cattle Price in the Cattle Procurement Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 48(3), September.
    7. Maples, Joshua G. & Lusk, Jayson L. & Peel, Derrell S., 2019. "Technology and evolving supply chains in the beef and pork industries," Food Policy, Elsevier, vol. 83(C), pages 346-354.
    8. Melissa G.S. McKendree & Tina L. Saitone & K. Aleks Schaefer, 2021. "Oligopsonistic Input Substitution in a Thin Market," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(4), pages 1414-1432, August.
    9. Utomo, Dhanan Sarwo & Onggo, Bhakti Stephan & Eldridge, Stephen, 2018. "Applications of agent-based modelling and simulation in the agri-food supply chains," European Journal of Operational Research, Elsevier, vol. 269(3), pages 794-805.
    10. Christopher N. Boyer & Charles C. Martinez & Joshua G. Maples & Justin Benavidez, 2023. "Price ranges from fed cattle negotiated cash sales," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(3), pages 1659-1671, September.
    11. McKendree, Melissa G. S. & Saitone, Tina L. & Schaefer, K Aleks, 2020. "Cattle Cycle Dynamics in a Modern Agricultural Market: Competition in Holstein Cattle Procurement," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304380, Agricultural and Applied Economics Association.
    12. Kopp, Thomas & Salecker, Jan, 2020. "How traders influence their neighbours: Modelling social evolutionary processes and peer effects in agricultural trade networks," Journal of Economic Dynamics and Control, Elsevier, vol. 117(C).
    13. Zhepeng Hu & B. Wade Brorsen, 2017. "Spatial Price Transmission and Efficiency in the Urea Market," Agribusiness, John Wiley & Sons, Ltd., vol. 33(1), pages 98-115, January.
    14. Hadachek, Jeffrey & Saitone, Tina L & Sexton, Richard J & Skorbiansky, Sharon Raszap & Thornsbury, Suzanne & Effland, Anne, 2022. "Organic Feed Grains and Livestock: Factors That Influence Outcomes in Thinly Traded Markets," Economic Research Report 327179, United States Department of Agriculture, Economic Research Service.
    15. Thomas Kopp & Jan Salecker, 2018. "Modelling Social Evolutionary Processes and Peer Effects in Agricultural Trade Networks: the Rubber Value Chain in Indonesia," Papers 1811.11476, arXiv.org.
    16. Raszap Skorbiansky, Sharon & Adjemian, Michael K. & Saitone, Tina L. & Sexton, Richard J., "undated". "Price Determination and Margin Volatility in Thinly Traded Commodity Markets: An Application to Major U.S. Field Crops," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258577, Agricultural and Applied Economics Association.
    17. Christopher N. Boyer & B. Wade Brorsen & James R. Fain, 2015. "Private‐Value Auction Versus Posted‐Price Selling: An Agent‐Based Model Approach," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 22(4), pages 249-262, October.
    18. 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.
    19. Brorsen B. Wade & Fain James R. & Maples Joshua G., 2018. "Alternative Policy Responses to Increased Use of Formula Pricing," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 16(1), pages 1-11, January.
    20. Kopp, T. & Salecker, J., 2018. "Identifying Influential Traders by Agent Based Modelling," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277130, International Association of Agricultural Economists.
    21. Sharon Raszap Skorbiansky & Michael K Adjemian, 2021. "Not All Thin Markets Are Alike: The Case of Organic and Non‐genetically Engineered Corn and Soybeans," Journal of Agricultural Economics, Wiley Blackwell, vol. 72(1), pages 117-133, February.
    22. Mérel, Pierre & Sexton, Richard J., 2017. "Buyer power with atomistic upstream entry: Can downstream consolidation increase production and welfare?," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 259-293.

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