Volume 8, Issue 1

Marketing institutions in supply managed industries are evolving due to broad globalization pressures. The output and sales decisions of chicken processing firms under two different pricing mechanisms are modeled using a linear-quadratic inventory model. Decision rules lead to structural equations that relate output and sales to their own lagged values, lagged inventories and lagged prices and cost indicators. A Generalized Method of Moments (GMM) estimator is applied to the system of equations. The null hypotheses no adjustment costs in processing and no role for inventories in marketing are rejected. We simulate the impacts of reforming the chicken pricing mechanism, moving from producers vs. processors bargaining to a formula-based price (referred to as “cost-plus"). Output in the industry is higher under the bargaining pricing system mostly because processors pay a lower price than under the “cost-plus" mechanism. Simulations reveal that producers' expected profits are lower on average under the bargaining system than under “cost-plus." Moreover, the “cost-plus" system reduces the variability of profits.

In this paper we empirically analyze whether prices serve as signals. Specifically, and following the hypothesis by Bagwell and Riordan (1991), we examine whether (1) higher quality and (2) low consumer information levels about quality are associated with prices that are above the full information equilibrium. We refer to two price samples of identical wines and analyze the difference between both. The first sample consists of prices for informed wholesalers who can taste the wines before purchase. The second sample comprises retail prices for the imperfectly informed public. We find support for the Bagwell-Riordan model, i.e., price signals respond positively to wine quality and negatively to increasing information. For our sample, the information effect by far dominates the quality effect.

Californians recently passed Proposition 2, barring the use of cages in egg production in the state. Because most consumers are unknowledgeable of egg production practices, the appearance of Proposition 2 likely served as an information shock that potentially affected consumer demand. In this paper, we use scanner data to investigate the market effects of Proposition 2 by studying whether and how consumer demand for eggs changed in the months leading up to the vote in San Francisco and Oakland. Results indicate that demand for the types of eggs associated with higher animal welfare standards, cage free and organic, increased over time and in response to articles on the proposition whereas demand for other types of eggs fell. These results coupled with the finding that cage free and organic egg demand was virtually unchanged in a location unaffected by the vote, Dallas, suggests that Proposition 2 had a significant effect on consumer preferences for eggs – increasing demand for cage free and organic eggs by 180% and 20%, respectively.

Contracts serve as coordination mechanisms which allocate value, risk, and decision rights across buyers and sellers. The use of marketing contracts in agriculture, specifically for crop production, has been increasing over the past decade. This study investigates the determinants of agricultural marketing contract design employing data from the USDA's Agricultural Resource Management Survey. Models are estimated to analyze the association between producer and contractor characteristics, the decision to produce under contract, and the types of contract structures observed in practice, while controlling for the potential for endogenous matching between contracting parties. Results indicate that while certain producer characteristics are significantly associated with the decision to produce corn or soybeans under contract, there is no significant association between those characteristics and specific contract attributes.

This paper explores the impacts of Protected Designation of Origin (PDO) certification on the costs and profits of firms as well as consumers’ and total welfare. The paper argues that PDO labels are different from other common labeling schemes, as they involve technological and capacity constraints that influence their economic efficiency. Using a theoretical model of endogenous quality choice, which incorporates vertical differentiation with the costs constraints linked to the PDO label, we explore the way producers can signal their quality either by certifying their product through PDO or by investing in a collective private common label. Results show that even if PDOs are efficient from a producer perspective, a society might be better off with less stringent techniques of quality signaling, relying on private collective certification.

This paper examines the factors that influence the earned income of organic farmers, given their decisions to engage in local selling. The model explicitly accounts for the sorting of producers across different levels of commitment to local sales on the basis of both observable and unobservable heterogeneity. The significant selectivity coefficients confirm that when producers choose to market organic products primarily through local outlets, earnings are overestimated (biased upward) if the selectivity corrections are neglected. Positive selection effects are present for farmers most intensively involved in local sales, contributing to higher earnings on average for these producers. After controlling for key farm and demographic characteristics, selling more locally suggests lower earnings for organic farmers.

In this paper, we propose an optimal marketing decision model in the context of poor agrarian economies. We consider a risk averse banana producer who faces an optimal allocation decision on how much to sell to a cooperative vis-à-vis private traders. To validate the model, a numerical exercise was undertaken using farm-gate transaction data. The overall result suggests that under different risk scenarios, an optimal earning is obtained if a farmer allocates 70 to 85 percent of his produce to a cooperative and the rest in the private market. Any allocation more than 85 percent or less than 70 percent is likely to result in a sub-optimal solution given the current market structure and price setting.

Using a unique data set of transaction-level retail food sales, I find that food prices are negatively related to supermarket chains’ shares of total U.S. food sales. The negative relationship suggests that supermarket chains enjoy economies of scale or benefit from an improved post-merger bargaining position. In contrast, the regressions also show an increase in price after a merger, which is independent from changes in observable control variables. Subsequent fractional logit analysis suggests mergers are associated with decreases in the frequency and depth of price-promotions. These latter effects suggest supermarkets enjoy greater unilateral pricing power post-merger, perhaps due to improved brand identity.

While experimental auctions are demand revealing in theory, recent studies question whether bids fully reflect willingness to pay due to the presence of outside substitutes available in conventional markets. The presence of outside substitutes implies that bids should theoretically be censored from above at the market price. While bid price censoring has been recognized in the literature, previous research has not examined the specific dollar level at which bids should be censored—the price at which a product can actually be purchased outside of the experimental auction or the price at which participants believe it can be purchased. We provide evidence from a field interview and experimental auction that individual-specific “perceived prices” differ from actual market prices. The dichotomy between perceived and true market prices is shown to have significant implications for econometric analysis of bid price data.

The French fishing industry has a long history and its seafood market a wide variety of products. Despite the worldwide growth in ecolabelling schemes over the past decade, the French industry has only very recently shown an interest in such schemes. Growing consumer and retailer awareness of environmental issues in France has changed the situation and it is now of interest to look at the demand for seafood ecolabelling in relation to the public perception of commercial fishing.We analyse, using an ordered Probit model, the factors influencing consumer demand for seafood ecolabelling on the basis of a French survey carried out on more than 1000 consumers. Our results show a significant relationship between the acceptability of ecolabelling and certain purchase criteria. The production process characteristics in (origin, wild vs. farmed, level of natural stocks) impact more strongly on the demand for ecolabelling than product attributes (form, visual appeal, freshness). Consumers are also influenced more by regulation than by information, inaccurate or otherwise, they may have about the fishing industry. Finally, our analysis confirms a higher demand for ecolabelling from young, educated consumers, particularly those living in non-coastal areas.

Exports of agricultural commodities to developed countries play a significant role in the economies of many developing countries. The elimination of import tariffs has the potential to benefit producers in the developing countries, but estimates of the extent of the gains from trade liberalization typically assume perfect competition. Significant concentration in the food processing and retailing sectors of the U.S. and the EU undermine the plausibility of this assumption in the case of agricultural trade, however. Sexton, Sheldon, McCorriston, and Wang (2007) develop a model of the effects of trade liberalization that accounts for the vertically-linked and concentrated characteristics of the developed countries’ food markets. Their analysis is limited to the case of a constant per unit tariff, however. In this paper, we extend the analysis of the effects of trade liberalization in the presence of downstream market power to the case of an ad valorem tariff, and we find important qualitative differences from the results for the unit tariff case.