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Price Bargaining Without Supply Control

Published online by Cambridge University Press:  15 September 2016

Henry W. Kinnucan
Henry W. Kinnucan*
Affiliation:
Department of Agricultural Economics and Rural Sociology, Auburn University
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Abstract

Primary food producers are permitted to bargain as a group for higher prices. Supply response, however, is critical to the long-run success of producer cartels. This article presents a model that elucidates that role of supply response in agricultural price bargaining when no overt action is taken to limit quantity and participation in the cartel is voluntary. Free-riding, for example, is seen as having a dual nature: it undermines the cartel's influence at the negotiating table but it enhances the cartel's ability to sustain a negotiated price increase by attenuating supply response. That price bargaining can result in significant transfers from processors to producers when demand is inelastic and supply is uncontrolled is highlighted in the empirical application.

Type
Articles
Information
Agricultural and Resource Economics Review , Volume 24 , Issue 1 , April 1995 , pp. 119 - 127
Copyright
Copyright © 1995 Northeastern Agricultural and Resource Economics Association 

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