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Transportation Cost and Market Power of Middlemen: A Spatial Analysis of Agricultural Commodity Markets in Developing Countries

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  • Suzuki, Aya
  • Sexton, Richard J.

Abstract

While high transportation cost and market power are long-recognized sources of market inefficiency, their analytical relation has not been established in a developing country context. In this paper, we analyze the mechanism by which lower transportation costs increase farm prices and profits by reducing marketing costs and marketing firms' exercise of oligopsony power. We utilize a two-stage game framework to demonstrate use of an endogenous financing mechanism to generate funds to improve transportation infrastructure and derive the optimal rate of taxation to maximize producer welfare.

Suggested Citation

  • Suzuki, Aya & Sexton, Richard J., 2005. "Transportation Cost and Market Power of Middlemen: A Spatial Analysis of Agricultural Commodity Markets in Developing Countries," 2005 Annual meeting, July 24-27, Providence, RI 19329, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea05:19329
    DOI: 10.22004/ag.econ.19329
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    References listed on IDEAS

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    1. de Janvry, Alain & Fafchamps, M. & Sadoulet, Elisabeth, 1991. "Peasant Household Behavior with Missing Markets: Some Paradoxes Explain," CUDARE Working Papers 198579, University of California, Berkeley, Department of Agricultural and Resource Economics.
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    3. Barrett, Christopher B., 1997. "Food marketing liberalization and trader entry: Evidence from Madagascar," World Development, Elsevier, vol. 25(5), pages 763-777, May.
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    5. Staal, Steven & Delgado, Christopher & Nicholson, Charles, 1997. "Smallholder dairying under transactions costs in East Africa," World Development, Elsevier, vol. 25(5), pages 779-794, May.
    6. Greenhut,Melvin L. & Norman,George & Hung,Chao-Shun, 1987. "The Economics of Imperfect Competition," Cambridge Books, Cambridge University Press, number 9780521315647, September.
    7. Zhang, Mingxia & Sexton, Richard J., 2000. "Captive Supplies And The Cash Market Price: A Spatial Markets Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(1), pages 1-21, July.
    8. E. Leigh Bivings, 1997. "The Seasonal and Spatial Dimensions of Sorghum Market Liberalization in Mexico," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 383-393.
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    10. de Janvry, Alain & Fafchamps, Marcel & Sadoulet, Elisabeth, 1991. "Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained," Economic Journal, Royal Economic Society, vol. 101(409), pages 1400-1417, November.
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    Cited by:

    1. Christine Moser & Christopher Barrett & Bart Minten, 2009. "Spatial integration at multiple scales: rice markets in Madagascar," Agricultural Economics, International Association of Agricultural Economists, vol. 40(3), pages 281-294, May.

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