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Millers, Commission Agents and Collusion in Grain Auction Markets: Evidence from Basmati Auctions in North India

Author

Listed:
  • A. BANERJI

    (Delhi School of Economics)

  • J. V. MEENAKSHI

    (Delhi School of Economics)

Abstract

This paper undertakes structural estimation of asymmetric auction models in a market for basmati, and detects the presence of a cartel consisting of a large (in market share) local miller and commission agents purchasing for large distant millers. The contracts between the distant millers and their commission agents help to explain the specific form that collusion takes. Simulations indicate that (i) the cartel gains considerably by colluding, over the competitive outcome; (ii) however, sellers (farmers) do not lose significantly under collusion when the commission agents bid; (iii) a knowledgeable auctioneer would choose much higher starting prices for auctions when commission agents bid, compared with the observed starting prices. The paper also shows that efficient collusion, the form of collusion commonly assumed in the literature, does not explain the data well.

Suggested Citation

  • A. Banerji & J. V. Meenakshi, 2004. "Millers, Commission Agents and Collusion in Grain Auction Markets: Evidence from Basmati Auctions in North India," Working papers 129, Centre for Development Economics, Delhi School of Economics.
  • Handle: RePEc:cde:cdewps:129
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    References listed on IDEAS

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    1. Paarsch, Harry J., 1992. "Deciding between the common and private value paradigms in empirical models of auctions," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 191-215.
    2. repec:cup:etheor:v:12:y:1996:i:3:p:517-67 is not listed on IDEAS
    3. Kenneth Hendricks & Robert H. Porter, 1989. "Collusion in Auctions," Annals of Economics and Statistics, GENES, issue 15-16, pages 217-230.
    4. Hong, Han & Shum, Matthew, 2003. "Econometric models of asymmetric ascending auctions," Journal of Econometrics, Elsevier, vol. 112(2), pages 327-358, February.
    5. Laffont, Jean-Jacques & Ossard, Herve & Vuong, Quang, 1995. "Econometrics of First-Price Auctions," Econometrica, Econometric Society, vol. 63(4), pages 953-980, July.
    6. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, vol. 71(5), pages 1443-1489, September.
    7. Kenneth Hendricks & Joris Pinkse & Robert H. Porter, 2003. "Empirical Implications of Equilibrium Bidding in First-Price, Symmetric, Common Value Auctions," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 115-145.
    8. Patrick Bajari & Ali Hortacsu, 2005. "Are Structural Estimates of Auction Models Reasonable? Evidence from Experimental Data," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 703-741, August.
    9. Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-699, August.
    10. Susan Athey & Philip A. Haile, 2002. "Identification of Standard Auction Models," Econometrica, Econometric Society, vol. 70(6), pages 2107-2140, November.
    11. Skrzypacz, Andrzej & Hopenhayn, Hugo, 2004. "Tacit collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 114(1), pages 153-169, January.
    12. Donald, Stephen G. & Paarsch, Harry J., 1996. "Identification, Estimation, and Testing in Parametric Empirical Models of Auctions within the Independent Private Values Paradigm," Econometric Theory, Cambridge University Press, vol. 12(03), pages 517-567, August.
    13. Graham, Daniel A & Marshall, Robert C, 1987. "Collusive Bidder Behavior at Single-Object Second-Price and English Auctions," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1217-1239, December.
    14. Robert H. Porter & J. Douglas Zona, 1999. "Ohio School Milk Markets: An Analysis of Bidding," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 263-288, Summer.
    15. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
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    Cited by:

    1. repec:oup:jcomle:v:3:y:2007:i:1:p:1-47. is not listed on IDEAS
    2. Paul Klemperer, 2007. "Bidding Markets," Journal of Competition Law and Economics, Oxford University Press, vol. 3(1), pages 1-47.
    3. Meenakshi, J.V. & Banerji, A., 2005. "The unsupportable support price: an analysis of collusion and government intervention in paddy auction markets in North India," Journal of Development Economics, Elsevier, vol. 76(2), pages 377-403, April.
    4. Aparajita Goyal, 2010. "Information, Direct Access to Farmers, and Rural Market Performance in Central India," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 22-45, July.
    5. Songsermsawas, Tisorn & Baylis, Kathy & Chhatre, Ashwini & Michelson, Hope & Prasanna, Satya, 2015. "Friends or traders? Do social networks explain the use of market mechanisms by farmers in India," 2015 Conference, August 9-14, 2015, Milan, Italy 211206, International Association of Agricultural Economists.

    More about this item

    Keywords

    Auctions; Cartels; Agricultural Markets.;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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