Behaviour under imperfect competition on markets for agricultural goods in economically less developed countries, exemplified with the rubber value chain
Final Report Abstract
The most important scientific advancements made during the research period were in the form of three research papers which I authored and submitted for publication, plus one discussion paper. These three submitted papers were invited to "revise and resubmit" by leading journals in agricultural economics. In the paper "When Asymmetric Switching Costs Cause Market Power: The Case of Rubber Processing in Indonesia" I develop a model of switching costs of rubber traders in Indonesia, explaining deviations from the “law of one price” through a fixed cost component incurred by agricultural suppliers when switching buyers. The paper finds evidence of substantial switching costs in the rubber market leading to buyer power and substantial income losses for farmers. My simulations showed that halving the cost of farmers in switching buyers would reduce the associated income losses by 77 percent. A second paper, "Farmers, Traders, and Processors: Successive Buyer Power and Double Marginalization, with Application to the Indonesian Rubber Sector" demonstrates that market power is particularly damaging to welfare in terms of deadweight loss. We estimate the price, output, and welfare effects of double marginalization and find evidence for buyer power of village traders over farmers and by rubber processors over traders. Average buyer market power for traders and processors was roughly equivalent to oligopsony conditions among three homogeneous buyers. A third paper, "How Traders Influence their Neighbours: Modelling Social Evolutionary Processes and Peer Effects in Agricultural Trade Networks", develops an agent-based-model replicating channel choice behaviours of agricultural traders. It is the first study to use such an approach. The model investigates and predicts how individual characteristics of agents affect their trading decisions, identifying the overall impact of social interactions and other measured variables on traders’ channel choice. We find that debt obligations between a seller and potential buyer and social closeness are the most important factors when traders decide on a buyer. Other key drivers of peer influence are physical proximity to the peers and similarity in education levels. Four policy scenarios were emulated with the model. Results indicate that the most effective policies to increase smallholder incomes are those improving formal credit access, e.g., through a microcredit scheme, and that policies intended to increase education levels can positively affect the competitive situation in villages and reduce transaction costs.
Publications
- (2018). “Social equity and ecological sustainability - can the two be achieved together?” cege Discussion Papers 357, pp. 1–32
Kopp, T. and F. Dorn
(See online at https://doi.org/10.2139/ssrn.3294285) - (2019). “Can the South East Asian rubber conglomerate manipulate international rubber prices?” Efforts Discussion Paper 30, pp. 1–28
Kopp, T., J. Dalheimer, Z. Alamsyah, M. Yanita, and B. Brümmer
- (2019). “The Climate Effect of Digitalization in Production and Consumption in OECD Countries”. Proceedings of the 6th International Conference on ICT for Sustainability, pp. 1–11
Kopp, T. and S. Lange
