Multilayer of Suppliers' Fixed Costs and the Model of Vertical Restraints
41 Pages Posted: 16 Feb 2018
Date Written: January 26, 2018
Purpose: The present study is in the context of the new Model Agricultural Produce Market Committee (APMC) Act 2003, which aims at freedom of farmers to sell their products to the large private firms and bringing reforms in the wholesale Cash and Carry and retail markets in India. The most important suggestions have remarked in the Economic survey 2014-15 and outlined that state governments should be specially persuaded by the central government to provide policy support for alternative or special markets in the large private sector. Many states, including West Bengal, accepted the proposal and have opened the market of agricultural commodities for the large private sector. This paper studies a model of vertical restraints in the case of small farmers in West Bengal, India considering multilayer of fixed costs and monopoly power of the small as well as large traders in the vertical structure. Moreover, also interested to find the conditions of small farmer's gain and possible strategy impacts on the cost of cultivation and consumer expenditure.
Design/methodologies/approach: We consider a model of vertical restraints where, downstream firms (viz. Retail traders, Cash and Carry traders) purchase agricultural food products from the consolidators, where the consolidator buys their saleable commodities from the small farmers.
Findings: We explain how the presence of the large trader is affecting the wholesale market prices and retail prices. Thus we can easily understand the competition between the small and large retailers in agricultural, food commodities retail market in India. Moreover, we study a model of vertical restraints in the case of India considering multilayer of fixed costs and monopoly power of the small as well as large traders in the vertical structure. We are also interested to find the conditions of small farmer's gain and possible strategy impacts on the cost of cultivation and consumer expenditure.
Research limitations/implications: The current study is based on both the theory and empirical evidence. The empirical study is based on the state West Bengal, India.
Practical implications: The study will help to formulate the policies related to APMC in India. Moreover, the paper identified the possible factors that are affecting negatively in the rural wholesale market and helping to create cartel and imperfection.
Social Implications: The study will help to improve agricultural marketing decisions at large when we invite large traders, and that will improve the small farmers’ gain.
Originality/Value: The study is based on the real field data and the model that has been built is based on that database. Therefore, the paper will help to add some value to the subject.
Keywords: Buyer Market Power, Vertical Competition, Agricultural Market, Small Farmers, Large Capital Traders, Consolidators, Price Behaviour, Non-Linear Pricing Strategies
JEL Classification: D8, D43, L13, L81, L1, M31, O13, Q11, Q13
Suggested Citation: Suggested Citation