Optimal Quality Threshold of Admission in a Two-Sided Farmers’ Market

Abstract

We develop a two-sided model for a farmers’ market where farmers value the number of consumers, and consumers value the number of farmers and the average product quality in the market. Consumer preference over product quality provides an incentive for the farmers’ market to exclude farmers of the lowest product quality. Using the model, we identify what factors the farmers’ market has to consider in determining the optimal quality threshold of admission, an issue that has not received any formal study. Those factors include the network effects between farmers and consumers, consumer preference over product quality and variety, and farmer quality spread. We also outline an empirical estimation strategy in order to make use of the model developed in this study.

Keywords: consumer preference, farmers’ market, network effect, quality threshold of admission, two-sided market

JEL Classification: L81, L14, Q13