PRICE BARGAINING WITHOUT SUPPLY CONTROL

Primary food producers are permitted to bargain as a group for higher prices. Supply response, however, is critical to the long-run success of producer cartels. This article presents a model that elucidates that role of supply response in agricultural price bargaining when no overt action is taken to limit quantity and participation in the cartel is voluntary. Free-riding, for example, is seen as having a dual nature: it undermines the cartel's influence at the negotiating table but it enhances the cartel's ability to sustain a negotiated price increase by attenuating supply response. That price bargaining can result in significant transfers from processors to producers when demand is inelastic and supply is uncontrolled is highlighted in the empirical application.


Issue Date:
1995-04
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/31459
Published in:
Agricultural and Resource Economics Review, Volume 24, Number 1
Page range:
119-127
Total Pages:
9




 Record created 2017-04-01, last modified 2017-08-24

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