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Monopsonistic Food Processing and Farm Prices: The Case of the West Alabama Catfish Industry

Published online by Cambridge University Press:  05 September 2016

Henry Kinnucan  and
Gregory Sullivan
Henry Kinnucan
Affiliation:
Department of Agricultural Economics and Rural Sociology, Auburn University
Gregory Sullivan
Affiliation:
Dallas, Texas
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Abstract

Increasing concentration in food processing has important economic implications for agricultural producers and consumers. This paper addresses the issue by focusing on a case where pure monopsony conditions appear to hold–catfish processing in West Alabama. Farm-level impacts of the market power imbalance are described via a six equation theoretical model. Results show price elasticity of farm supply governing the economic incentive to the processor for exploiting its market power: less (more) elastic supply implies greater (lesser) divergence between competitive and monopsony price. The theoretical model is operationalized using an indirect procedure recently suggested by Houck for estimating farm level supply elasticities. Based on these supply elasticities and historical prices, the model predicts a 12-35 percent potential reduction in prices received by West Alabama producers as a result of market power imbalance.

Keywords

monopsonyprice exploitationprice discriminationsupply elasticitywelfare losscatfish
Type
Submitted Articles
Information
Journal of Agricultural and Applied Economics , Volume 18 , Issue 2 , December 1986 , pp. 15 - 24
Copyright
Copyright © Southern Agricultural Economics Association 1986

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