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Spatial Pricing in Uncontested Procurement Markets: Regulatory Implications

Author

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  • Sesmero Juan

    (Purdue University, 403 West State St., West Lafayette, IN, USA, 47907)

Abstract
This study derives a general characterization of the misalignment between socially and privately optimal spatial pricing in an uncontested procurement market. In doing so it clarifies the link between firm-gate price markdown (pricing the input below its marginal value product at the firm’s location) and spatial price discrimination (varying markdown by distance). We subsequently examine the implications of our results for regulatory prescriptions. Our analysis reveals that, in the absence of regulation, increased firm-gate price markdown is necessarily accompanied by intensified spatial price discrimination, and that discrimination is always conducted against nearby producers. We find that if regulation targets price markdown at the firm gate, then spatial price discrimination is also inhibited resulting in welfare gains. In contrast, directly targeting spatial price discrimination (as generally prescribed by enacted and proposed legislation) cannot attain a first best, and may in fact result in efficiency losses relative to the unregulated equilibrium.

Suggested Citation

  • Sesmero Juan, 2018. "Spatial Pricing in Uncontested Procurement Markets: Regulatory Implications," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 16(1), pages 1-14, January.
    • Handle: RePEc:bpj:bjafio:v:16:y:2018:i:1:p:14:n:1
    DOI: 10.1515/jafio-2016-0013
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    References listed on IDEAS

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    Cited by:

    1. Jung, Jinho & Sesmero, Juan Pablo & Balagtas, Joseph V., 2017. "Market Power in Feedstock Procurement and Economic Effects of Corn Ethanol," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258544, Agricultural and Applied Economics Association.
    2. Jinho Jung & Juan Sesmero & Ralph Siebert, 2020. "Spatial Differentiation and Market Power in Input Procurement: Evidence from a Structural Model of the Corn Market," CESifo Working Paper Series 8088, CESifo.

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    More about this item

    Keywords

    spatial monopsony; spatial price theory; regulation; welfare;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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