Formula Price Contracts as an Alternative to Forward Integration by Farmer Cooperatives

Firms may seek contractual alternatives to vertical integration in order to achieve transactional economies or adjust for market imperfections. Blair and Kaserman have shown that under fixed-proportions production technology. Firms within bilateral and successive monopoly market structures can use formula price contracts to achieve results economically equivalent to integration. This paper examines whether formula price contracts are a viable alternative to forward integration for farmer cooperatives. Analysis of a three-stage vertical market structure indicates that the conditions under which a cooperative assembler can use a formula price contract are more restrictive than those for an investor-owned firm.


Subject(s):
Issue Date:
1993
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/46390
Published in:
Journal of Agricultural Cooperation, Volume 08
Page range:
28-38
Total Pages:
11




 Record created 2017-04-01, last modified 2017-08-25

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