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Buyer and Seller Concentration in Global Commodity Markets

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Abstract

Commodity markets may be characterized by concentration on the buyer side, with a small number of transnational intermediary firms purchasing from supplying countries and distributing to the market. In many cases, developing economies may have little choice but to sell through these intermediaries, and recent work has suggested the export taxes may be an optimal policy to recapture some of the monopsony rent. However, in many commodity markets there are a limited number of large supplying countries. Even if the markets are competitive, this supply-side concentration suggests that economies have market power themselves, and that the governments of the countries may be engaged in a strategic game when selecting trade policies. We consider a situation where an oligopsonistic intermediary industry purchases from a small number of supplying countries, the governments of which act strategically in their policy choices both with respect to the intermediaries and any competing suppliers. In the resulting two-stage game, we show that an export subsidy may arise as the optimal intervention.

Suggested Citation

  • Reza Oladi & John Gilbert, 2009. "Buyer and Seller Concentration in Global Commodity Markets," Working Papers 200911, Utah State University, Department of Economics, revised 15 Sep 2009.
  • Handle: RePEc:usu:wpaper:200911
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    References listed on IDEAS

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    1. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
    2. Ngo, Van Long & Soubeyran, Antoine, 1997. "Cost heterogeneity, industry concentration and strategic trade policies," Journal of International Economics, Elsevier, vol. 43(1-2), pages 207-220, August.
    3. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Journal of Industry, Competition and Trade, Springer, vol. 7(1), pages 31-52, March.
    4. De Santis, Roberto A, 2000. "Optimal Export Taxes, Welfare, Industry Concentration, and Firm Size: A General Equilibrium Analysis," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 319-335, May.
    5. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Experimental Economics, Springer;Economic Science Association, vol. 7(1), pages 31-52, March.
    6. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    7. Alan V. Deardorff & Indira Rajaraman, 2009. "Buyer Concentration in Markets for Developing Country Exports," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 190-199, May.
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    Cited by:

    1. Pio Baake & Steffen Huck, 2013. "Crop Failures and Export Tariffs," Discussion Papers of DIW Berlin 1342, DIW Berlin, German Institute for Economic Research.
    2. John Gilbert & Hamid Beladi & Reza Oladi, 2015. "North–South Trade Liberalization and Economic Welfare," Review of Development Economics, Wiley Blackwell, vol. 19(4), pages 1006-1017, November.
    3. ISHIKAWA, Jota & TARUI, Nori, 2015. "Backfiring with backhaul problems: Trade and Industrial Policies with Endogenous Transport Costs," Discussion paper series HIAS-E-12, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

    More about this item

    Keywords

    Strategic export subsidies; export taxes; global commodity markets;

    JEL classification:

    • F1 - International Economics - - Trade

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