An industrial organisation model for the Vietnamese food retail market

Abstract

Using the case of Vietnam, this paper proposes an industrial organisation model of the food distribution system in developing countries. Since most work in this field has adopted an empirical approach, this paper will instead focus on a theoretical model based on the theory of imperfect competition applied in agricultural economics. We introduce two distribution channels of product differentiation linked vertically by demand, and study the quantity flow from small producers to consumers by means of a Nash equilibrium. We show that there is a Nash equilibrium of the food distribution system and market power, with effects on both farmers and consumers. The paper discusses the implications of these results and proposes policies to intervene in the market and mitigate its power to improve the wealth of both farmers and consumers. The competitive market model of the food distribution system presented in this paper is also important in analysing the policy implications of a food market with imperfect competition in developing countries.