Market Power in International Commodity Trade: The Case of Coffee

This paper studies the impact of market power on international commodity prices. I use a standard oligopoly model and exploit historical variations in the structure of the international coffee bean market to assess the impact of a cartel treaty on coffee prices and its global welfare consequences. The results suggest that the International Coffee Agreement (ICA, 1965–89) raised its price by 75% above the Cournot‐competitive level, annually transferring approximately $12 billion from consumers to exporting countries, and its lapse in 1989 explains four‐fifths of the subsequent price decline, that is, the ‘coffee crisis.’     

Reprint of: Crop prices and the individual decision to migrate

This paper investigates the effect of commodity prices, in particular rice and coffee, on the decision of migrating at the individual level. As most coffee production is sold by households for exports, we would expect that coffee price shocks would have a direct effect on the probability to migrate. On the other hand, we would anticipate that fluctuations in rice prices have little or no effect on migration decisions, given that rice is mainly produced for household consumption. We test these hypotheses drawing evidence from migration in Viet Nam. We show that the lower the price of coffee, the higher the likelihood of migrating. This evidence seems to suggest that migration acts as a shock-coping strategy. We find that rice prices have no effect on the probability of migrating. We further explore the extent of migrants’ self-selection and show that lower coffee prices increase the migration probability of individuals with lower education.     

Crop prices and the individual decision to migrate

This paper investigates the effect of commodity prices, in particular rice and coffee, on the decision of migrating at the individual level. As most coffee production is sold by households for exports, we would expect that coffee price shocks would have a direct effect on the probability to migrate. On the other hand, we would anticipate that fluctuations in rice prices have little or no effect on migration decisions, given that rice is mainly produced for household consumption. We test these hypotheses drawing evidence from migration in Viet Nam. We show that the lower the price of coffee, the higher the likelihood of migrating. This evidence seems to suggest that migration acts as a shock-coping strategy. We find that rice prices have no effect on the probability of migrating. We further explore the extent of migrants’ self-selection and show that lower coffee prices increase the migration probability of individuals with lower education.     

The Ethiopian Commodity Exchange and spatial price dispersion

In this article, we study the impact of an institutional intervention on market efficiency in Ethiopia. More specifically, we analyze to what extent the Ethiopian Commodity Exchange (ECX) in combination with regional warehouses have contributed to a reduction in price spreads between regional markets. Our hypothesis is that warehouses connected to the ECX reduce the dispersion between export prices and local retail prices in different coffee growing areas, as well as the dispersion between export prices and local retail prices in different coffee growing areas. By doing so, the ECX has the potential to improve the market efficiency. To identify the causal effect, we combine retail price data with information on the gradual rollout of warehouses connected to the ECX from 2007 to 2012. Our results suggest that, when two markets both have access to an operating warehouse, the average price spread is 0.86–1.78 ETB lower than it is for markets where at least one part lacks warehouse access. This is a substantial reduction considering that the average price spread over the full period is 3.33 ETB. The main results are robust to various econometric specifications, and our analysis thus suggests that local warehouses connected to the ECX have indeed improved market efficiency.     

Flex cars and competition in fuel retail markets

We study how the diffusion of flex (bi-fuel) cars affected competition on ethanol and gasoline retail markets. We propose a model of price competition in which the two fuels become closer substitutes as flex cars penetration grows. We use a large panel of weekly prices at the station level to show that fuel prices and margins have fallen in response to this change. This finding is evidence of market power in fuel retail and indicates that innovations that increase consumer choice benefit even those who choose not to adopt them.     

2012，被涨价

麦当劳叔叔又行动了,涨价幅度在0．5元至2元,这也是麦当劳中国区自2009年11月最后一次下调价格后第7次涨价了。回顾2011年你会发现,3年没有涨价纪录的中式快餐真功夫,也从去年7月22日起全面调价,随后味干拉面、永和豆浆、庆丰包子铺等多家中式快餐店纷纷跟进。     

POSTING MULTIPLE PRICES TO REDUCE THE EFFECTIVENESS OF CONSUMER PRICE SEARCH*

In a model of competition with imperfect consumer price information and incomplete price search, some consumers may end up comparing prices originating from the same supplier: either because one firm sets multiple prices or because a group of firms colludes. This leads to added monopoly power for these firms, and average prices in the mixed strategy equilibrium become higher. There is a shift in welfare from consumers to producers, both with exogenous and endogenous consumer search behaviour. However consumers might search more or less with multiple prices. The implications for the price‐setting equilibrium, competition policy and recent judgements are considered.     

The effect of coal combustion byproducts on price discrimination by upstream industries

Price discrimination is often difficult to disentangle from price dispersion due to a lack of transaction level data capable of tracking sales from individual companies to quantifiably heterogeneous groups of consumers. This paper uses mine-mouth prices and transportation prices paid by regulated coal-fired power plants in the U.S. coal market during the time period 2009–2010 to study how coal mines and transportation companies practice price discrimination against electricity plants. Power plants with heterogeneous demand for coal are perfectly identified based upon their ability to market flue-gas desulfurization (FGD) gypsum, which is a byproduct produced from scrubbing SO₂ emissions. Because sulfur is the raw material for FGD gypsum byproduct production, gypsum sellers are anticipated to have a more inelastic demand for high-sulfur coal. Results indicate that coal mines and transporters charge higher prices to gypsum sellers in comparison to non-sellers for transactions originating at the same mine during the same month of the same year. Coal-fired power plants capable of selling FGD gypsum byproducts are estimated to pay a 10.3–39.6 ¢/MMBtu price premium for coal. Coal mines and transportation companies each capture a relatively equal share of the associated rents.     

New technology introduction in a marginal coffee area of Colombia

Income stagnation in the downward cycle of primary product prices is a problem for small farmers in developing countries. The recent abrupt price decline in coffee poses a large adjustment problem in marginal production areas. One method of farm income stabilization for marginal export crop production areas is diversification into food crops with improved technology. The potential for a cushioning of this farm income decline via the introduction of improved food crop technology was examined. A substantial moderating effect was obtained even without uprooting the improved coffee technology. Moreover, an analysis of the constraints to the earlier introduction of the Caturra coffee variety helped identify some of the components of farmer decision making relevant to adoption of new technology.     

Information and two-sided platform profits

We study the effect of different levels of information on two-sided platform profits—under monopoly and competition. One side (developers) is always informed about all prices and therefore forms responsive expectations. In contrast, we allow the other side (users) to be uninformed about prices charged to developers and to hold passive expectations. We show that platforms with more market power (monopoly) prefer facing more informed users. In contrast, platforms with less market power (i.e., facing more intense competition) have the opposite preference: they derive higher profits when users are less informed. The main reason is that price information leads user expectations to be more responsive and therefore amplifies the effect of price reductions. Platforms with more market power benefit because higher responsiveness leads to demand increases, which they are able to capture fully. Competing platforms are affected negatively because more information intensifies price competition.     

Commodity price inflation, retail pass-through and market power

When commodity prices rise, wholesalers and retailers of products derived from basic commodities respond by passing along at least a portion of the price increase to consumers. In this paper we examine whether firms respond differently to positive commodity price shocks than to negative commodity price shocks; that is, whether commodity price volatility alters market power. We exploit recent volatility in food commodity prices over the period 2007-2010 to investigate how commodity price shocks translate into market power in two different vertically-structured food product industries: potatoes and fluid milk. For potatoes, we find both wholesale and retail market power decreases (increases) during periods of rising (falling) commodity prices. Moreover, price-cost margins widen a substantially greater degree in response to negative shocks than margins narrow in response to positive shocks, indicating that commodity price volatility increases market power. For fluid milk, we find that market power likewise declines during periods of rising commodity prices; however, market power does not significantly change during periods of falling commodity prices, suggesting that commodity price volatility decreases market power.     

Prices,Profits, and Preference Dependence

We develop a new approach to discrete choice demand for differentiated products, using copulas to separate the marginal distribution of consumer values for product varieties from their dependence relationship, and apply it to the issue of how preference dependence affects market outcomes in symmetric multiproduct industries. We show that greater dependence lowers prices and profits under certain conditions, suggesting that preference dependence is a distinct indicator of product differentiation. We also find new sufficient conditions for the symmetric multiproduct monopoly and the symmetric single‐product oligopoly prices to be above or below the single‐product monopoly price.     

One‐Stop Shopping Behavior,Buyer Power and Upstream Merger Incentives

We analyze how consumer preferences for one‐stop shopping affect the (Nash) bargaining relationships between a retailer and its suppliers. One‐stop shopping preferences create ‘demand complementarities’ among otherwise independent products which lead to two opposing effects on upstream merger incentives: first a standard double mark‐up problem and second a bargaining effect. The former creates merger incentives while the later induces suppliers to bargain separately. When buyer power becomes large enough, then suppliers stay separated which raises final good prices. We also show that our result can be obtained when wholesale prices are determined in a non‐cooperative game and under two‐part tariffs.     

The Effect of Fuel Price Changes on Fleet Demand for New Vehicle Fuel Economy

New vehicle purchases by private companies and government agencies, or ‘fleet’ buyers, represent a significant percentage of overall new vehicle sales in the United States. Yet little is known about fleet demand for new vehicle fuel economy including how it responds to fuel price changes. Using unique disaggregated data on fleet and household registrations of new vehicles from 2009 to 2016, we estimate how fleet demand for new vehicle fuel economy responds to fuel price changes. We find that fleet purchases of low fuel economy vehicles fall relative to high fuel economy vehicles when gasoline prices increase, a finding that is consistent with fleet buyers’ taking into account capitalization of fuel costs in the second‐hand market. Our estimates imply that raising gasoline prices by one dollar would increase fuel economy of new vehicles acquired by fleet buyers by 0.33 miles per gallon. We estimate a similar response for household buyers during the same period. This result justifies basing fuel economy responses to fuel cost changes on household data alone, an assumption widely used in the vehicle demand literature and the fuel economy valuation literature. We also find, however, that the response to fuel price changes varies across the types of fleet buyers: rental companies respond strongly to fuel price changes, whereas commercial and government buyers are insensitive. Our estimates imply that an increase in the federal gasoline tax would modestly increase fuel economy of vehicles bought by households and rental companies but would have little to no impact on fuel economy of vehicles bought by non‐rental companies and governments.     

Increasing product variety and rising prices

Rising average prices have been observed following establishment of new varieties of ready-to-eat cereals, and with entry in the physicians' services market. Most explanations require monopoly or collusion, and/or consumer ignorance. Prices can rise in a non-cooperative market setting with full consumer knowledge, however, given preferences for different varieties. Demand for a particular variety becomes less elastic with entry if a seller loses the most elastic individual demands for that variety to the new substitute while retaining the least elastic consumer demands. Thus, price rises. Total purchases of all varieties also increase.     

Pricing policies of multinational enterprises : Host country regulation and welfare

This paper examines host country price-regulation policies towards a foreign subsidiary. The analysis considers two prices, namely the transfer prices charged to the subsidiary, and the market price of the subsidiary's products. It is shown that host countries should regulate both of these prices. Regulation of the transfer price alone may induce an increase in the subsidiary's market price and cause a loss of host country welfare. Regulation of both prices is more efficient for it enables the host country to attain a higher level of welfare and allows the foreign firm to earn the same level of profits as would regulation of only one of those prices.     

Estimating consumer surplus in the mobile telecommunications market: The case of Korea

This paper estimates consumer surplus in the Korean mobile telephone services (MTS) market. The Korean mobile telecommunications market has grown rapidly since 1997 when competition was introduced and Code Division Multiple Access (CDMA) technology was commercialized. Because consumer surplus is relevant to the controversy over establishing an appropriate price level between consumers and service providers, the need for a robust measurement of benefit from MTS is increasing. The measured net consumer surplus estimated by means of elasticities of demand reached about US$48.8 billion in the period 1996–2004 and the changes amounted to about US$8.8 billion during the same period. In particular, after competition was introduced into the market with an accompanying price decrease and increase in the number of subscribers, consumers have benefited greatly. Therefore, it can be inferred that a facility-based competition policy and the reduction in price of access such as handset subsidies all played a positive role in the early diffusion of MTS in Korea. The estimated consumer surplus in this paper does not include network externality (option externality); if this were considered, the total social welfare of the consumer would be larger.     

电力市场效率评估与碳市场价格设计——基于电碳市场关联视角下的传导率估计

厘清并量化电力市场与碳市场间的关联关系,是深化电力市场改革与实现"双碳"目标的重要抓手。本文基于2006—2018年中国100个地级及以上城市的面板数据,使用似不相关回归模型评估了电力市场效率,在此基础上研究了电、碳市场关联条件下碳价对电价的传导率,并对不同场景下全国碳市场的碳价进行了优化设计。研究发现:(1)与非试点地区相比,碳市场试点地区中电力市场的无谓损失率更低,并且市场效率的提高具有更高的碳减排作用。(2)电、碳市场关联条件下,碳价对电力市场中居民电价的传导率高于对工业电价的传导率,但均远低于完全竞争条件下的传导率水平。(3)传导率的提升能够缓解"降电价"与"碳减排"之间的矛盾。当前传导率下电力市场效率目标与碳减排目标的协同实现需要碳价的大幅提升,而在完全传导的理想情况下最优碳价约为40元/吨。(4)长期而言,当前传导率下碳排放总量下降场景、经济增速放缓场景对应的最优碳价分别为255.05元/吨、173.63元/吨,而人口老龄化场景并未对最优碳价的设置形成约束。本文的研究不仅为电力市场与碳市场之间的关联奠定了理论基础,也为全国碳市场价格机制的优化设计提供了政策参考。     

Pricing with customer recognition

This article studies the dynamic effects of behaviour-based price discrimination and customer recognition in a duopolistic market where the distribution of consumers' preferences is discrete. Consumers are myopic and firms are forward looking. In the static and first-period equilibrium firms choose prices with mixed strategies. When price discrimination is allowed, forward-looking firms have an incentive to avoid customer recognition, thus the probability that both will have positive first-period sales decreases as they become more patient. Furthermore, an asymmetric equilibrium sometimes exists, yielding a 100–0 division of the first-period sales. As a whole, price discrimination is bad for profits but good for consumer surplus and welfare.