The Role of Product Differentiation for Contract Choice in the Agro-Food Sector
Posted: 4 Jun 2010
This research examines the recent growth of contract use in the USA and European agro-food sector where asset specificity is not a dominant concern and secondary markets exist. It sheds light on the neglected capabilities of a contract to transmit buyer-specific information, obtain secondary information and price uncertain costs of buyer-specific product attributes when compared with alternative spot markets. It proposes that the value of a contract's capabilities increases with a processor's or retailer's demand for buyer-specific input attributes which require unique production practices and cannot be realised by after-harvest sorting. The implications for policy and contract design are also discussed.
Keywords: contracts, spot markets, product differentiation, communication costs, price discovery costs
JEL Classification: D83, D86, L14, Q13
Suggested Citation: Suggested Citation