Market and Bargaining Power

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Market and Bargaining Power

• AGBU 430
• Chapter 15

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Market power is like the wind. You can feel it
but you cannot see it.
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Market and Bargaining Power

• Market Power ability to advantageously influence
  markets, market behavior or market results
• Prices
• Demand
• Quality
• Flow of Product

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Examples

• Consumer boycott
• Wholesaler who is a price leader for other
  wholesalers
• Food processor who controls timing of product
  flow through producer contracts

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Sources of Market Power

• Firm Size, Market Concentration
• Supply Control
• Superior, Unequal Market Information
• Product Differentiation
• Diversification
• Control of Strategic Resources
• Financial Resources
• Ratio of Fixed to Variable Costs

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Market Power Producers and Retailers

• Producers
• Low levels of organization
• High fixed costs
• Homogeneous products
• Retailers
• Size
• Control of shelf space / private labels
• Direct contact with consumers
• Geographic and product diversity
• Conglomerate affiliations

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Marketing Orders and Agreements

• Help producer prices, incomes, and market power
• Strive for more orderly marketing
• Manage time, form, and space utility
• Agreements are voluntary and orders are mandatory
  agreements between producers, handlers of the
  product, and the Secretary of Agriculture on how
  to market the product

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Marketing Order

• Must be approved by 2/3 vote of producers
• Milk, fruits, nuts, and vegetables
• Prohibited for grains and livestock

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Marketing Order Provisions

• (For milk) Classify, set minimum prices, and
  average (pool) returns to producers
• Manage flow to market
• Establish allotments
• Control surplus production
• Regulate size, capacity, weight, of containers
• Set up market information such as product
  standardization or grading and RD efforts
• Prohibit unfair practices
• Commodity advertising
• Regulate imported commodities

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Orders as Monopolistic Devices

• For price discrimination
• More than one market with different elasticities
  of demand
• Control of supplies to market (marketing orders)
• Differentiation (advertising, grading, sorting..)

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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
• Wal-Mart vs. Brookshires

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Evaluation of Marketing Orders

• Stability of farmer returns
• Increase of prices in long-run
• Transfer of market power to producers from
  marketing firms
• Increased differentiation
• Increased advertising
• Generation of market information and research

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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

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State Trading Enterprises

• National Trading Monopolies
• Examples
• Canadian, Australian Wheat Boards
• New Zealand Dairy Board
• Illegal in America (inconsistent with market
  economy)