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Access pricing with regulated downstream competition and upstream externalities

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  • Kristin Linnerud
  • Steinar Vagstad

Abstract

We examine the optimal funding of farmers who have organised their activity in a cooperative that controls the supply of an input factor and meets competition in the market for its processed product. Since the rival's cost is private information, it may earn a rent. We show that the optimal price on the input factor -- the access price -- discriminates against the rival because rent is more valuable in the cooperative, and the regulator, therefore, sacrifices some cost efficiency in order to shift rents. The result is derived in a simplified context, but applies to contexts with more participants and products. Oxford University Press and Foundation for the European Review of Agricultural Economics 2010; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org, Oxford University Press.

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  • Kristin Linnerud & Steinar Vagstad, 2010. "Access pricing with regulated downstream competition and upstream externalities," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 37(1), pages 77-96, March.
    • Handle: RePEc:oup:erevae:v:37:y:2010:i:1:p:77-96
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    File URL: http://hdl.handle.net/10.1093/erae/jbp045
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