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Spatial Competition, Uniform Pricing, and Transportation Efficiency in the California Processing Tomato Industry

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  • Catherine A. Durham
  • Richard J. Sexton
  • Joo Ho Song

Abstract

This study examines the role of spatial pricing in the allocation of processing tomatoes from farms to the thirty-two processing facilities located in northern and central California. A simple theoretical model illustrates that the industry's uniform pricing policy encourages market overlap and excessive transportation costs relative to FOB pricing. A nonlinear mathematical programming model is developed to determine the optimal allocation of processing tomatoes. This allocation is then compared to the estimated actual allocation. The analysis reveals foregone profits of only 1.9% from inefficient product allocation. Simulation results reveal significant competition among processors despite their separation in many cases by long distances. Copyright 1996, Oxford University Press.

Suggested Citation

  • Catherine A. Durham & Richard J. Sexton & Joo Ho Song, 1996. "Spatial Competition, Uniform Pricing, and Transportation Efficiency in the California Processing Tomato Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 115-125.
    • Handle: RePEc:oup:ajagec:v:78:y:1996:i:1:p:115-125
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    Cited by:

    1. Hueth, Brent & Taylor, Christopher W., 2013. "Spatial Competition in Agricultural Markets: A Discrete-Choice Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150506, Agricultural and Applied Economics Association.
    2. Hall, R. Lee & Dorfman, Jeffrey H. & Gunter, Lewell F., 2004. "Spatial Competition And Pricing In The Agricultural Chemical Industry," 2004 Annual meeting, August 1-4, Denver, CO 20340, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Sesmero Juan, 2018. "Spatial Pricing in Uncontested Procurement Markets: Regulatory Implications," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 16(1), pages 1-14, January.
    4. Graubner, Marten & Balmann, Alfons & Sexton, Richard J., 2011. "Spatial Pricing and the Location of Processors in Agricultural Markets," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114601, European Association of Agricultural Economists.
    5. Marten Graubner & Richard J. Sexton, 2023. "More competitive than you think? Pricing and location of processing firms in agricultural markets," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(3), pages 784-808, May.
    6. Jinho Jung & Juan Sesmero & Ralph Siebert, 2020. "Spatial Differentiation and Market Power in Input Procurement: Evidence from a Structural Model of the Corn Market," CESifo Working Paper Series 8088, CESifo.
    7. Marten Graubner, 2018. "Lost in space? The effect of direct payments on land rental prices," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 45(2), pages 143-171.
    8. Stephen Hamilton & Scott Kjorlien & Ethan Ligon & Aric Shafran, 2024. "Spatial Procurement of Farm Products and the Supply of Processed Foods: Application to the Tomato Processing Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(1), pages 11-33, February.
    9. Stephen F. Hamilton & David L. Sunding, 2021. "Joint Oligopsony‐Oligopoly Power in Food Processing Industries: Application to the us Broiler Industry," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(4), pages 1398-1413, August.
    10. Walkenhorst, P., 2000. "Handelsliberalisierung, abgeleitete Produktnachfrage und die Wettbewerbsfähigkeit der Agrarwirtschaft," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 36.
    11. Jen-Te Yao & Fu-Chuan Lai, 2006. "Incentive consistency and the choice of a spatial pricing mode," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 40(3), pages 583-601, August.
    12. Murakami, Tomoaki & Nakajima, Shinsaku & Takahashi, Taro & Nishihara, Yukinaga & Imai, Asako & Kikushima, Ryousuke & Sato, Takeshi, 2014. "Spatially Varying Impacts of Farmers Markets on Agricultural Land Use," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170668, Agricultural and Applied Economics Association.
    13. Iddo Kan, 2008. "Yield quality and irrigation with saline water under environmental limitations: the case of processing tomatoes in California," Agricultural Economics, International Association of Agricultural Economists, vol. 38(1), pages 57-66, January.
    14. Graubner, Marten & Balmann, Alfons, 2012. "Spatial Pricing on Land Rental Markets," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125349, Agricultural and Applied Economics Association.
    15. Viergutz, Tim & Zubek, Nana & Schulze-Ehlers, Birgit, 2016. "How Spatial Pricing Affects Cooperative Members’ Switching Decisions," 149th Seminar, October 27-28, 2016, Rennes, France 244772, European Association of Agricultural Economists.
    16. Jinho Jung & Juan Sesmero & Ralph Siebert, 2022. "A structural estimation of spatial differentiation and market power in input procurement," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(2), pages 613-644, March.
    17. Hamed Khalili, 2024. "Deep Learning Pricing of Processing Firms in Agricultural Markets," Agriculture, MDPI, vol. 14(5), pages 1-14, April.
    18. Ekman, Sone & Andersson, Hans, 1998. "The economics of on-farm processing: model development and an empirical analysis," Agricultural Economics, Blackwell, vol. 18(2), pages 177-189, March.

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