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Pricing Policy Under Double Market Power: Madagascar and the International Vanilla Market

In: Developing Countries in the World Economy

Author

Listed:
  • Jaime de Melo
  • Marcelo Olarreaga
  • Wendy Takacs

Abstract

This paper uses a price-leadership model of the international vanilla market to study the welfare consequences of alternative pricing policies for Madagascar, the leader, that also controls domestic production through a single-channel marketing system. Econometric estimates of the model are used for simulations of welfare and revenue changes and internal redistribution of income. Results indicate that Madagascar could have gained between 0.9% and 2.6% of GDP per year on average over the period 1981–91 by following optimal pricing policies, and that producers were overtaxed suggesting that political economy considerations played a role in the pricing decisions.

Suggested Citation

  • Jaime de Melo & Marcelo Olarreaga & Wendy Takacs, 2015. "Pricing Policy Under Double Market Power: Madagascar and the International Vanilla Market," World Scientific Book Chapters, in: Developing Countries in the World Economy, chapter 8, pages 199-218, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814494908_0008
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    Citations

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    Cited by:

    1. Morisset, Jacques, 1997. "Unfair trade? Empirical evidence in world commodity markets over te past 25 years," Policy Research Working Paper Series 1815, The World Bank.
    2. Hoekman, Bernard & Saggi, Kamal, 1999. "Multilateral disciplines for investment-related policies," Policy Research Working Paper Series 2138, The World Bank.
    3. Jaime DE MELO & Marcelo OLARREAGA, 2017. "Trade Related Institutions and Development," Working Papers P199, FERDI.
    4. Rakotoarisoa, Manitra A. & Shapouri, Shahla, 2001. "Market power and the pricing of commodities imported from developing countries: the case of US vanilla bean imports," Agricultural Economics, Blackwell, vol. 25(2-3), pages 285-294, September.
    5. Cadot, Olivier & Dutoit, Laure & de Melo, Jaime, 2006. "The elimination of Madagascar's Vanilla Marketing Board, ten years on," Policy Research Working Paper Series 3979, The World Bank.
    6. Yilmaz, K., 1999. "Nash and Stackelberg Optimum Export Taxes," Papers 99/04, Koc University.
    7. Maret, Fenohasina, 2007. "Distortions to Agricultural Incentives in Madagascar," Agricultural Distortions Working Paper Series 48551, World Bank.
    8. Khalid Khan & Chi-Wei Su & Adnan Khurshid & Muhammad Umar, 2022. "Are there bubbles in the vanilla price?," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 10(1), pages 1-16, December.
    9. Kamil Yilmaz, 2006. "How much should primary commodity exports be taxed? Nash and Stackelberg equilibria in the Global Cocoa Market," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(1), pages 1-26.
    10. Hoekman, Bernard & Holmes, Peter, 1999. "Competition policy, developing countries, and the World Trade Organization," Policy Research Working Paper Series 2211, The World Bank.

    More about this item

    Keywords

    Trade Barriers and Market Structure; Quantitative Restrictions; Political Economy and Migration; Trade and the Environment;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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