The Role of Product Differentiation for Contract Choice in the Agro-Food Sector

Posted: 4 Jun 2010

See all articles by Jongick Jang

Jongick Jang

Hanshin University

Frayne Olson

affiliation not provided to SSRN

Abstract

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

Jang, Jongick and Olson, Frayne, The Role of Product Differentiation for Contract Choice in the Agro-Food Sector. European Review of Agricultural Economics, Vol. 37, No. 2, pp. 251-273, 2010, Available at SSRN: https://ssrn.com/abstract=1617078 or http://dx.doi.org/jbq013

Jongick Jang

Hanshin University ( email )

137 HANSHINDAE-GIL, OSAN-SI
GYEONGGI-DO
Korea, Republic of (South Korea)

Frayne Olson

affiliation not provided to SSRN ( email )

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