Input Market Research Articles

Strategic spin-offs of input divisions

When a downstream producer enters backward into the input market, a “helping the rivals effect” exists: Such entry hurts the firm's downstream business as it increases upstream competition and thus benefits its rival downstream firms. This negative externality prevents the newly-created upstream unit from expanding. A spin-off enables the firm to credibly expand in the input market, thereby forcing its upstream competitors to behave less aggressively. Spin-offs occur in equilibrium if and only if the number of downstream firms exceeds a threshold level. When there is more than one integrated firm, a spin-off by a firm can trigger spin-offs by others that would not occur otherwise.

Can oligopsony power be measured? The case of U.S. old newspapers market

This paper uses an index analogous to Lerner-index in the input market to derive a price–cost margin that measures input exploitation by few large buyers. This paper identifies oligopsony characteristics associated with the old newspaper (ONP) input market for recycled-content newsprint manufacture and then examines the impacts of market performances on ONP input prices. The wastepaper recycling market, in particular, ONP has not been successful in utilizing the ONP generated. The existence of high sunk costs for entry to the market, along with the small numbers of buyers in the old newspapers market, were the reasons to believe that the waste paper industry had oligopsony elements among paper recycling mills. The regional oligopsony/oligopoly indices were derived and the impact of these market powers on ONP input prices were examined for period 1972–1995. The findings of this study were: oligopsony elements were present to certain degrees among the recycled-content newsprint manufacturers; and the oligopsony market power enabled these mills to exert a larger price–cost margin on ONP input market.

Measurement Matters: Input Price Proxies and Bank Efficiency in Germany

Most bank efficiency studies that use stochastic frontier analysis (SFA) employ each bank's own implicit input price when estimating efficient frontiers. But the theoretical foundation of most studies is a cost minimisation and/ or profit maximisation problem assuming perfect input markets. At the very least, traditional input price proxies therefore contain substantial measurement error. In this paper, we examine the magnitude and direction of this error in cost and profit efficiency (CE and PE) measurement. We suggest two input market definitions to approximate exogenous input prices alternatively and estimate CE and PE of German banks between 1993 and 2003. Our main findings are threefold. First, after accounting for systematic differences across banks, mean CE is sensitive to alternative input prices. Second, distortions of mean PE due to traditional input prices are small. Third, across CE models small cooperative banks located in large western states are identified as top performers. Large banks and those located in eastern states rank lowest.

The growth of Quebec's biotechnology firms and the implications of underinvestment in strategic competencies

This paper examines the problem of human resources access for biotechnology firms in Quebec. The results of a survey conducted with 124 biotechnology firm managers document that access to human resources is a sizable challenge, the second most important issue facing these firms, after financing. The results further indicate that while firm managers are preoccupied by the skills and competencies of human resources and recognise its importance, the scarcity of available headcount in the market, coupled with firm growth management imperatives, are a key limiting factor in the development of the firms' competencies. In this study, a strategic competence model is applied to understand the contribution of human resources to the management process of biotechnology firms. In particular, we formulate the working hypothesis that firms engage in fierce competition in the input market for scientific, technological, and management competencies. A systems archetype is used to illustrate the tradeoff between short-term financial priorities and the need for capacity building, whose "tangible" benefits will only be measured in the long term.

Technology-Based Intellectual Property Pricing in the Differentiated Oligopoly Input Market

Technology-Based Intellectual Property Pricing in the Differentiated Oligopoly Input Market

Anticompetitive Overbuying by Power Buyers

There is now a growing interest in antitrust in the anticompetitive conduct of buyers. This article (to be published in the Antitrust Law Journal) analyzes potentially anticompetitive conduct by power buyers. Overbuying involves increasing the purchases of a particular input with the purpose and effect of gaining either monopsony power in the input market or market power in the output market. Predatory overbuying is overbuying inputs as a predatory strategy to cause buyer-side competitors in the input market to exit from the market or permanently shrink their capacity, in order to gain monopsony power in the input market. Raising Rivals' Costs (RRC) Overbuying is overbuying inputs in order to raise rivals' input costs and thereby gain market power in the output market. After briefly reviewing classical monopsony conduct, the article analyzes these two strategies in detail. It examines the impact of the conduct on the overbuying firm, its competitors, input suppliers and the consumers in the output market. It sets out the conditions under which these strategies are both profitable for the firm and harmful to consumers. This analysis suggests a four-part rule of reason legal standard. It then discusses short-cut tests and compares this conduct to classical predatory pricing, including the relevance of the price-cost test and the profit-sacrifice test. It also compares the relative competitive risks of the two overbuying strategies. It concludes that predatory overbuying raises less serious competitive concerns than RRC overbuying, and that plaintiffs alleging such predatory overbuying should be subject to a more demanding legal standard, including a requirement that plaintiffs show price less than cost.

Manager's effort and endogenous economic discrimination

Assume a labor supply consisting of two types of workers, 1 and 2. Both workers are equally productive and exhibit supply functions with the same elasticity. We consider a firm (entrepreneur or shareholders) that is competitive in the output market and monopsonistic in input markets. The firm uses the services of a manager who has a high human capital and whose wage is given by the market. It is supposed that the manager does not like to work with one type of worker, say type 1. If we allow the manager's effort to be an additional input without any extra (in addition to his salary) cost for the firm, then the firm's pricing decision will be different for both workers. That is, there will be a wage differential and therefore endogenous economic discrimination2 in the labor markets.

The transition of the Japanese keiretsu in the changing economy

This paper applies an evolutionary game model to link an economy's environment with the organizational choices made by firms operating inside of that specific environment in a dynamic framework. Applying this to the economies of Japan and the US in the 1980s and 1990s, it was shown that the structure in the 1980s could not last in which the keiretsu system dominated in Japan and the traditional American system dominated in the US Our model predicts an interior equilibrium, i.e., the coexistence of both systems in the US and Japan. Moreover, this equilibrium is reached only by a combination of very weak keiretsu network, a drop of demand in Japan, and a partially opened input market. The results offer an explanation for why the transition from the 1980s equilbrium to the 1990s equilibrium took so long. J. Japanese Int. Economies 19 (1) (2005) 96–109.

Production and Productivity Effects of Informal Contract Farming in Kenya's Smallholder Horticultural Sub-sector

This paper uses data from a 2001 household survey of small-scale farming households in Kirinyaga District, Kenya to explore production effects of informal credit contracts in French bean farming where formal markets for surplus production are seemingly shallow and imperfect. Specifically, it examines whether informal arrangements spur productivity and intensity of inputs use. A three stage least square (3SLS) modelling strategy is used to quantify the direct and indirect effects of contracts on French bean output conditional upon infrastructure, institutional and farmer-specific socio-economic factors. The results show that fertilizer, pesticides and High Yielding Variety seeds use, and French bean output price have direct positive and significant effects on productivity. On the other hand, the period under contract negatively and significantly affect productivity. Indirectly, however, informal contract - proxied by credit value - and farm size positively influence productivity through significant variable input use intensity whereas the input market prices negatively and significantly influence variable input demand. Policy implications are drawn. Keywords: Contract farming; smallholders; horticulture; productivity; Kenya Eastern African Journal of Rural Development Vol.19(1) 2003: 13-24

A Simulation Model of the Price Bargaining Rules in Vertical Relationships

This paper analyzes the dynamics of the price and quantity bargaining between four agents, in a current industrial structure, with a special attention to the price bargaining. The structure combines a bilateral monopoly in a market for inputs, and a duopoly in a final market. After a simplified presentation of a model which proposes equilibrium solutions to the bargaining, we present the protocol and the results of an experiment whose objective is twofold. The first one is to test the assumptions of the model. The second one is to identify behavioral models and bargaining rules for a work of simulation. The experimental results do not confirm the solutions of the theoretical model, which predicted a Nash solution for the price bargaining, and used the cournot conjecture in the quantity bargaining. A detailed analysis of the results leads to some observations useful to parameterize a simulation model. The simulation runs a systematic analysis of the dynamics of the bargaining rules in this structure.

Participatory approach for the identification of dairy industry needs inthe design of research, development and extension actions: Australianand Brazilian case studies

In both Australia and Brazil there are rapid changes occurring in the macroenvironment of the dairy industry. These changes are sometimes not noticed in the microenvironment of the farm, due to the labour-intensive nature of family farms, and the traditionally weak links between production and marketing. Trends in the external environment need to be discussed in a cooperative framework, to plan integrated actions for the dairy community as a whole and to demand actions from research, development and extension (R, D & E). This paper reviews the evolution of R, D & E in terms of paradigms and approaches, the present strategies used to identify dairy industry needs in Australia and Brazil, and presents a participatory strategy to design R, D & E actions for both countries. The strategy incorporates an integration of the opinions of key industry actors (defined as members of the dairy and associated communities), especially farm suppliers (input market), farmers, R, D & E people, milk processors and credit providers. The strategy also uses case studies with farm stays, snowball interviewing techniques, semi-structured interviews, content analysis, focus group meetings, and feedback analysis, to refine the priorities for R, D & E actions in the region.

Producer Benefits from Input Market and Trade Liberalization: The Case of Fertilizer in China

In recent years, a number of researchers have documented the impact of China's trade and domestic market liberalization-both positive and negative-on the performance of the rural economy (Huang and Chen; Huang, Rozelle, and Chang). Most of the work, however, has focused on the agricultural output markets. Beyond the impacts that have occurred through output markets, liberalizing trade and domestic markets also can affect producers through the effects on agricultural inputs. To compete effectively with producers from other countries and benefit from trade liberalization, farmers in China need to have access to high-quality, modern inputs. The effects of input market and trade liberalization also can be significant; fertilizer accounts for around 40% of the cash outlays of farmers in China and chemical fertilizers are China's

Oligopsony/Oligopoly Power and Factor Market Performance: The Case of U.S. Old Newspapers

This paper derives price-cost margins for the old newspaper (ONP) input market for newsprint manufacture and then examines the effects of two government policies and two variables measuring the market performances of ONP input and newsprint output on the oligopsonist's ONP price-cost margins. In the wastepaper recycling market in particular, the ONP input market has not been successful in using the ONP generated. The outcomes of the study are that various degrees of price distortions existed in the ONP input markets in four regions of the United States during 1972–1995. Demand-side policy had a positive effect and supply-side policy had a negative effect on ONP price–cost margins in all regions.

ALTERNATIVE OPTIMAL TRADE POLICIES IN THE PRESENCE OF FOREIGN INPUT MONOPOLY

Abstract. This paper develops a generalized three‐country model with downstream and upstream industries to analyze optimal import and export trade policies in the presence of monopoly distortion in a foreign intermediate input market. It shows that the import tariff and export tax are linearly dependent. Thus, the optimal choice of the tariff gives rise to the same results as the optimal choice of the export tax, which implies that the domestic government, to avoid tariff retaliation, can use export tax as a substitute for the import tariff.

Expanding access to agricultural inputs in Africa: a review of recent market development experience

This paper asks: What can be done to expand input use in Africa? and Can it be done in a manner that supports continued growth of private sector input markets? The precarious food security situation in many African countries has prompted governments and donors to use input distribution or credit programs as a means of rapidly increasing food supply for the poor. These efforts, however, often reduce the ability of input market development programs to stimulate commercial interest in input supply. A review of both types of programs describes recent efforts to address constraints to expanded input use and finds that further expansion is often constrained by inadequate investment in a variety of public goods needed to stimulate input-led agricultural intensification. Rather than continuing to invest resources in programs to provide inputs or credit directly to farmers, governments (with donor assistance) should consider shifting their focus to the serious deficiencies in the provision of public goods (roads, irrigation, basic education, market information systems, research and extension) and improved institutions (contract law and enforcement, systems of grades and standards). Improvements in these areas can both lower costs of supply and increase farm-level demand, creating a situation where the private sector will have greater incentives to expand input distribution networks to zones and farmers who currently do not have access.

Nonoptimal Levels of Suburbanization

Suburbanization has many causes, among which is the attempt to relocate to acquire a more desirable vector of local public goods. The traditional economists' procedure for valuing public goods involves vertical aggregation of marginal willingness to pay, at a given income level. This approach is flawed by failing to recognize that individuals will not work for goods that cannot be acquired individually with higher incomes. There will be a parallel input market failure any time there is a public good output market failure, thus the ‘given income’ of the traditional valuation method is too low. Hence, traditional valuation methods result in underprovision of local public goods (for example, parks, safety, education, and environmental quality) at the urban centers. As a consequence, there will be nonoptimally large levels of suburban sprawl with substantial resulting welfare loss.

False Promise or False Premise? The Experience of Food and Input Market Reform in Eastern and Southern Africa

The literature on the effects of agricultural market reform in Africa is sharply divided and inconsistent. This article attempts to reconcile opposing viewpoints on the effects of food and input market policy reform in eastern and southern Africa. Drawing from studies of Ethiopia, Kenya, Malawi, Zambia, and Zimbabwe, we argue that a major source of the controversy stems from assumptions that countries have actually moved to a liberalized market environment. We find that many of the most fundamental elements of the reform programs either remain unimplemented, were reversed within several years, or were implemented in such a way as to negate private sector investment incentives. A framework is developed for explaining why some countries have been able to liberalize their food and fertilizer markets while others have not. These findings have implications for how donor assistance and policy-oriented research can more constructively contribute to an improved policy environment.

Cost Manipulation Games in Oligopoly, With Costs of Manipulating

We analyze a class of two‐stage games where rival firms incur real resource costs in manipulating their marginal costs, so as to influence the outcome of the game they want to play in stage two. Marginal costs may be manipulated by various means, such as redistribution of productive assets, choice of location, or creation of an internal input market. A general formulation of the game is provided, and several applications are analyzed. We show that the optimal allocation of resources within an oligopoly can be asymmetric, even for ex‐ante symmetric firms. This is an additional explanation of heterogeneity in oligopoly.

Endogenous retailer preferences in intermediate good markets

We model strategic interaction in a differentiated input market as a game among two suppliers and n retailers. Each one of the upstream firms chooses the specification of the input which it will offer.Then, retailers choose their type from a continuum of possibilities. The decisions made in these two first stages affect the degree of compatibility between each retailer's ideal input specification and that of the inputs offered by the two upstream firms. In a third stage, upstream firms compete setting input prices. Equilibrium may be of the two-vendor policy or of the technological monopoly type.

Policies for African seed enterprise development

The commercial seed sector has been slow to develop in sub-Saharan Africa. The paper examines the major impediments and identifies areas in which seed policies can be strengthened. Seed enterprise development has been hampered by regulatory frameworks that favor parastatal enterprises and that inhibit commercial innovation. In addition, government and donor projects provide large amounts of free or subsidized seed that further discourages seed enterprise development. In addition to regulatory reform and the curtailment of many seed distribution projects, there are other policy changes that need to be implemented. National agricultural research institutes need to invest more resources in promoting their varieties and helping to stimulate commercial seed production. Greater emphasis is required on regional strategies for public plant breeding and private seed marketing. National policies need to strengthen input marketing capacity and infrastructure. Finally, donors, governments and NGOs should shift from trying to encourage village-level commercial seed production and instead strengthen farmers’ capacities to assess new varieties and to be effective consumers of commercial inputs.