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Modeling Processor MarketPower and the Incidence of Agricultural Policy: A Nonparametric Approach

Modeling Processor MarketPower and the Incidence of Agricultural Policy: A Nonparametric Approach

Chapter:
(p.51) 2 Modeling Processor MarketPower and the Incidence of Agricultural Policy: A Nonparametric Approach
Source:
The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies
Author(s):
Rachael E. GoodhueCarlo Russo
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226988061.003.0003

This chapter investigates the link between downstream, processor market power and U.S. agricultural policies. It examines marketing loan and pre-1986 deficiency payment programs in which payments are made to farmers only if the market price was less than a target price. This chapter makes an important contribution to the literature by examining how federal programs affect firms' ability to exercise market power and how some of the rents intended for farmers are captured by downstream firms. Although earlier studies indicate that firms in many relevant markets have substantial oligopoly or oligopsony power, traditionally most analyses of federal subsidy programs have assumed that these markets are competitive. Given the assumption of competition, most previous studies of the effects of agricultural price support policies have examined the size of the transfer to farmers relative to the deadweight loss.

Keywords:   agriculture, market power, milling industry, U.S. farm policy, inverse regression, average real prices

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