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Pricing policy under Double Market Power: Madagascar and the International Vanilla Market



This paper uses a price leadership model of the international vanilla market to study the welfare consequences of alternative pricing policies for Madagascar, the leader in the vanilla market, that also controls domestic production through a single-channel marketing system. Econometric estimates of the model are used for simulations of welfare and revenue gains and losses and internal redistribution of income from alternative pricing policies. The results indicate that Madagascar could have gained between 0.9 to 2.6 percent of GDP per year on average over the period 1981-91 by following optimal pricing policies, and that producers were overtaxed suggesting that political economy considerations played a role in the pricing decisions.

Suggested Citation

  • Jaime MELO DE & OLARREAGA & TAKACS, 1996. "Pricing policy under Double Market Power: Madagascar and the International Vanilla Market," Working Papers 199617, CERDI.
  • Handle: RePEc:cdi:wpaper:22

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    References listed on IDEAS

    1. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, June.
    2. Leibenstein, Harvey, 1989. "Organizational economics and institutions as missing elements in economic development analysis," World Development, Elsevier, vol. 17(9), pages 1361-1373, September.
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    4. Jalan, Jyotsna & Ravallion, Martin, 1999. "Are the poor less well insured? Evidence on vulnerability to income risk in rural China," Journal of Development Economics, Elsevier, vol. 58(1), pages 61-81, February.
    5. Glover, David J., 1987. "Increasing the benefits to smallholders from contract farming: Problems for farmers' organizations and policy makers," World Development, Elsevier, vol. 15(4), pages 441-448, April.
    6. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    7. Glover, David J., 1984. "Contract farming and smallholder outgrower schemes in less-developed countries," World Development, Elsevier, vol. 12(11-12), pages 1143-1157.
    8. Ethan Ligon, 1998. "Risk Sharing and Information in Village Economies," Review of Economic Studies, Oxford University Press, vol. 65(4), pages 847-864.
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    Cited by:

    1. Hoekman, Bernard & Saggi, Kamal, 1999. "Multilateral disciplines for investment-related policies," Policy Research Working Paper Series 2138, The World Bank.
    2. Yilmaz, K., 1999. "Nash and Stackelberg Optimum Export Taxes," Papers 99/04, Koc University.
    3. Maret, Fenohasina, 2007. "Distortions to Agricultural Incentives in Madagascar," Agricultural Distortions Working Paper 48551, World Bank.
    4. Cadot, Olivier & de Melo, Jaime & Dutoit, Laure, 2006. "The Elimination of Madagascar's Vanilla Marketing Board, Ten Years On," CEPR Discussion Papers 5548, C.E.P.R. Discussion Papers.
    5. Jaime DE MELO & Marcelo OLARREAGA, 2017. "Trade Related Institutions and Development," Working Papers P199, FERDI.
    6. Morisset, Jacques, 1997. "Unfair trade? Empirical evidence in world commodity markets over te past 25 years," Policy Research Working Paper Series 1815, The World Bank.
    7. Rakotoarisoa, Manitra A. & Shapouri, Shahla, 2001. "Market power and the pricing of commodities imported from developing countries: the case of US vanilla bean imports," Agricultural Economics, Blackwell, vol. 25(2-3), pages 285-294, September.
    8. Kamil Yilmaz, 2006. "How much should primary commodity exports be taxed? Nash and Stackelberg equilibria in the Global Cocoa Market," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(1), pages 1-26.
    9. Hoekman, Bernard & Holmes, Peter, 1999. "Competition policy, developing countries, and the World Trade Organization," Policy Research Working Paper Series 2211, The World Bank.

    More about this item

    JEL classification:

    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship


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