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

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  • Royer, Jeffrey S.
  • Bhuyan, Sanjib

Abstract

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.

Suggested Citation

  • Royer, Jeffrey S. & Bhuyan, Sanjib, 1993. "Formula Price Contracts as an Alternative to Forward Integration by Farmer Cooperatives," Journal of Agricultural Cooperation, National Council of Farmer Cooperatives, vol. 8, pages 1-11.
    • Handle: RePEc:ags:joagco:46390
    DOI: 10.22004/ag.econ.46390
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    References listed on IDEAS

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    5. Condon, Andrew M. & Cotterill, Ronald W. & Rhodes, V. James & Shaffer, James D. & Staatz, John M., 1987. "Cooperative Theory: New Approaches," Service Reports (SR) 280614, United States Department of Agriculture, Rural Development.
    6. Rogers, Richard T. & Marion, Bruce W., 1990. "Food Manufacturing Activities of the Largest Agricultural Cooperatives: Market Power and Strategic Behavior Implications," Journal of Agricultural Cooperation, National Council of Farmer Cooperatives, vol. 5, pages 1-15.
    7. John A. Jamison, 1960. "Coordination and Vertical Expansion in Marketing Cooperatives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 42(3), pages 555-566.
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