Buyer Collusion and Efficiency of Government Intervention in Wheat Markets in Northern India: An Asymmetric Structural Auctions Analysis

Abstract

This paper uses auction theory to analyze wholesale markets for wheat in Northern India. This approach enables us not only to characterize the market in terms of buyer asymmetries, but also to detect the existence of collusion and to quantify its impact on market prices. We show that buyer asymmetries exacerbate the downward impact of collusion on prices. The paper also demonstrates the use of auction theory to analyze questions of government efficiency. It considers whether the government paid too much for the wheat it procured at the minimum support price, and shows that for our sample it did not. The paper is based on a primary survey of two wholesale markets in North India.