220chapter15

Market and Bargaining Power: 

Market and Bargaining Power AGEC 220 Chapter 15

Preview: 

Preview What is Market Power? Who Has Power In the Food Industry? How Do You Get It? What Should Be Done About It?

Definitions of Market Power: 

Definitions of Market Power The Ability to Advantageously Influence Markets, Market Behavior or Market Results May Include Power Over Prices Costs Flow of Product Technology

Three Forms of Market Power: 

Three Forms of Market Power Opponent Pain Power (Threatening) Do It My Way Or Else Take It Or Leave It Opponent Gain Power (Cooperating) I’ll Help You If You Will Help Me Let’ Cooperate to Find a Mutual Solution Third Party Gain Someone Else Pays For Our Gain

The Imbalance of Market Power In the Food Industry: 

The Imbalance of Market Power In the Food Industry Who Has the Power? Farmers Middlemen Consumers

Sources of Market Power: 

Sources of Market Power Firm Size, Market Concentration Supply Control Superior, Unequal Market Information Product Differentiation Diversification Control of Strategic Resources

Farmer Market Power Tools: 

Farmer Market Power Tools Numbers and Sizes of Farmers Cooperatives Market Development Programs Bargaining Associations Withholding Actions (Strikes) Government Price Programs Marketing Orders and Agreements Marketing Boards (State Trading Enterprises.)

Farmer Cooperatives (Chap. 13) : 

Farmer Cooperatives (Chap. 13) Cooperatives: A business owned and controlled by its member-patrons and operated on a non-profit basis for its patrons Types: Marketing cooperatives (e.g.Milk Marketing Inc.) Purchasing cooperatives (e.g. Countrymark, LOL) Service coops (Rural Electric Assocs.) Processing coops (Sunkist, Ocean Spray) Purposes: Increase member prices, lower costs Farmer integration into marketing

Agricultural Bargaining Assocs.: 

Agricultural Bargaining Assocs. Similar to labor unions Farmers collectively bargain with buyers Set annual price before harvest Examples: Indiana tomatoes, popcorn California Cling Peach Assoc. Limited by (1) no supply control; (2) free riders

Marketing Orders and Agreements: 

Marketing Orders and Agreements State and Federal regulations (since 1933) Permit producers to control marketing over time, form and space (orderly marketing) Used for milk, fruits, vegetables (prohibited for livestock, grains) Influence, don’t set prices; no supply control

Price Discrimination: 

Price Discrimination Pf Pm D fluid milk (inelastic) D mfg. dairy prods. (elastic) Qf Qm +TR

Examples of Price Discrimination: 

Examples of Price Discrimination Fresh and processed dairy products Fresh and processed fruits and vegs. National brands vs. store brands Domestic sales vs. exports Fresh bread vs. day old bread Marsh Supermarket vs. Village Pantry Harvard vs. Purdue?

Conditions for Successful Price Discrimination: 

Conditions for Successful Price Discrimination Different time, form, space markets with different elasticities of demand Effective control of supply to each market Buyers must be willing to pay different prices in each market (hi=inelastic; low=elastic) Sellers must prevent market arbitrage

Northeast Dairy Compact: 

Northeast Dairy Compact Goals: raise dairy prices, increase dairy farmer share of consumer dollar Limits milk entry into Eastern markets Sets a minimum producer and retail price Permits production controls Problems: Raises consumer prices Restricts interstate flows of milk

State Trading Enterprises: 

State Trading Enterprises National Trading Monopolies Examples: Canadian, Austrailian Wheat Boards New Zealand Dairy Board Russian Exporthelb; Chinese Grain Trading Illegal in America (inconsistent with market economy)

Limits to the Exercise of Market Power: 

Limits to the Exercise of Market Power Competitive Substitutes: There are substitutes for everything Consumer Price Resistance Industry Supply Response Entry of New Firms Government Threats Long-Term Goodwill of Customers

Solving the Food Market Power Problem: 

Solving the Food Market Power Problem Two Approaches: Make Farmers Less Perfectly Competitive Make Middlemen More Perfectly Competitive (Anti-Trust Laws) Countervailing Power: Insuring Equal Power of Buyers and Sellers in Influencing the Terms of Trade