Recipient Organization
KANSAS STATE UNIV
(N/A)
MANHATTAN,KS 66506
Performing Department
Agri Economics
Non Technical Summary
This project is focused on analyzing issues of industrial structure, market competition, intellectual property right in various food and agricultural industries. Multiple research methods including conceptual modeling, econometric estimation, and simulation analysis will be adopted in this research. A lot of theoretical and empirical models will be developed, estimated, and analyzed. Data will be collected through various sources such as industry associations, U.S. and foreign government agencies, publically available databases, and published journals and reports. The unique feature of this project is that we focus on addressing several knowledge gaps along the food marketing chain that are essential for the understanding of the functioning of related industries and designing appropriate policies. The results of this project will help improve the understanding on those important issues and provide useful information for agricultural producers, processors, food marketers, consumers, and policy makers.Specifically, this project will reveal how new developments and characteristics such as vertical coordination, new forms of market power, licensing of patented technology, and government policy affect market competition and performance in many important agricultural and food industries. Little is known about these new mechanisms and their impact although they are important to participants of related industries. This project will also provide useful information that can help many industries such as livestock, milk, corn, soybeans, agricultural glyphosate, and grocery retailing become more efficient and competitive, and help design more appropriate policies.
Animal Health Component
50%
Research Effort Categories
Basic
50%
Applied
50%
Developmental
(N/A)
Goals / Objectives
1. Analyze how market power impacts the effects of supply shock on price transmission in the U.S. fluid milk industry.2. Investigate vertical coordination and competition in the food supply chain.3. Study food retailers' selling strategies and consumer behavior in concentrated market.4. Investigate the impacts of genetically engineered (GE) trait cross-licensing and mergers in the U.S. corn and soybean seed markets.5. Assess the role of subsidies, moral hazard, and other farm bill changes in the U.S. federal crop insurance market.6. Examine the impact of patent expiration and the role of market power in the U.S. agricultural glyphosate market.
Project Methods
1. Analyze how market power impacts the effects of supply shock on price transmission in the U.S. fluid milk industry.Knowledge Gap, Previous Work and How Project Addresses GapPrice transmission has caught considerable attention in many markets including the U.S. fluid milk markets. Price transmission can be impacted by supply shocks in agricultural industries. A growing literature (e.g., Pendell et al. 2016; Thompson et al. 2019) investigates the economic consequences of supply shocks due to animal disease outbreaks. Previous studies use a partial equilibrium model based on perfect competition. This may not be appropriate for a market that is highly concentrated such as the U.S. fluid milk market.Thus, this project will investigate the role of upstream and downstream market power in determining the effect of potential supply shocks on price transmission.Research Methods/Experimental ProceduresWe will develop a conceptual framework, which extends the Villas-Boas and Hellerstein's (2006) model of successive oligopoly. We will also estimate a structural econometric model using data on the U.S. fluid milk market. Finally, we will simulate how market power impacts the effect of supply shocks on prices.2. Investigate vertical coordination,intellectual property right, and competition in the food supply chain.Knowledge Gap, Previous Work and How Project Addresses GapIncreased vertical coordination in the supply chain has evolved simultaneously with greater supply-chain concentration (Saitone & Sexton 2017). Modern supermarkets have adopted centralized procurement systems that have eroded the role of traditional wholesalers. Among food manufacturers, vertical coordination is considered critical to securing access to a stable supply of farm products (Sexton 2013). Research work on the relationship between licensing of intellectual property right (IPR) and competition in the agricultural sector has been limited (e.g., Demski and Sappington 1986; Umeno 2006).Concerns about the effect of vertical coordination and licensing of IPR on market competition have been widespread. However, the competitive implication of vertical coordination and licensing has not been adequately examined. This project will investigate the effects of various forms of vertical coordination and licensing on agricultural and food prices and welfare.Research Methods/Experimental ProceduresA conceptual model will be developed based on a growing literature modeling multiple stages of food supply chain. An econometric analysis will be conducted using data on prices, quantities of agricultural products, vertical coordination methods, licensing, the concentration ratios, and other measures.3. Study food retailers' selling strategies and consumer behavior in concentrated markets.Knowledge Gap, Previous Work and How Project Addresses GapFood retailers are generally perceived to have gained significant power due to the consolidation of food retailing. Studies of food retailer pricing have often focused on single products or product categories, including fluid milk (e.g., Richards et al. 2012), breakfast cereals (Nevo 2001), beef (e.g., Anders 2008), and eggs (Allender & Richards 2010). These studies do not account for cross-category interdependence in food retailing. Other aspects that the existing literature did not pay enough attention to are presence of discounters, spatial dimensions, and market basket shopping. This project will focus on these aspects to examine food retailers' selling strategies and the impact on consumer behavior.Research Methods/Experimental ProceduresThis study will include a conceptual model and a quantitative simulation. All three stages of food supply chain, the procurement, the processing, and the retailing, will be explicitly modeled. The empirical data on farm supply elasticities, retail demand elasticities, and the market structure will be used in the simulation analysis.4. Investigate the impacts of genetically engineered (GE) trait cross-licensing and mergers in the U.S. corn and soybean seed markets.Knowledge Gap, Previous Work and How Project Addresses GapGenetically engineered (GE) traits were commercially introduced in the United States in the mid-1990s and there is a complex web of GE trait cross-licensing agreements between the major seed firms. In the patent literature, cross-licensing has been recognized as an effective solution for the problem of fragmented and overlapping patent rights (Shapiro 2000). But cross-licensing also raises competitiveness concerns. Firms can use cross-licensing arrangements to implement collusive outcomes to raise prices (Shapiro 1985). However, there is no existing empirical work on the implications of cross-licensing in the U.S. seed markets.The main thrust of the project is an in-depth study of the "supply side" of the US corn and soybean seed industry. With the "demand side" analysis in previous work, the goal is to produce an integrated set of models suitable for policy analysis.Research Methods/Experimental ProceduresThe demand side of the model is based on the framework developed in Ciliberto, Moschini and Perry (2019). The supply side will consist of a model in which seed firms strategically choose prices for the varieties. We will build the ownership matrix for each of the GE traits embedded in the seed varieties in our dataset.5. Assess the role of subsidies, moral hazard, and other farm bill changes in the U.S. federal crop insurance market.Knowledge Gap, Previous Work and How Project Addresses GapA critical element to assess the impacts of changes in U.S. federal crop insurance program on its costs and farmer welfare is the accurate estimation of demand for insurance products. Previous studies (e.g., Goodwin 1993; Du, Feng, and Hennessy 2016) have been limited by the availability of crop insurance data. Farm-level insurance purchase data is not available to the public. Crop insurance data at the county-level is publicly available but it does not contain information for those non-purchasing producers, which is potentially critical to unbiased demand estimation. To resolve these issues, this project will develop a structural demand framework capable of exploiting publicly available crop insurance data. This model could in turn be used to assess issues such moral hazard, the impacts of subsidies, and program design adjustments.Research Methods/Experimental ProceduresThe project will develop a structural market level discrete choice demand model for the U.S. crop insurance market. To estimate the model, the analysis will primarily rely on crop insurance data from the summary of business database, maintained by the Risk Management Agency (RMA).6. Examine the impact of patent expiration and the role of market power in the U.S. agricultural glyphosate market.Knowledge Gap, Previous Work and How Project Addresses GapEmpirical studies on patent expiration and brand loyalty have often focused on the pharmaceutical industry, with little work in an agricultural context. Here we consider these issues in the U.S. glyphosate market. Glyphosate is currently the most popular herbicide in the world and provides a unique and fascinating example of a market that has recently been transformed as a result of patent expiration (Perry, Hennessy, and Moschini 2019). The specific objectives of this study are to identify the underlying drivers of the market changes that followed glyphosate's patent expiration.Research Methods/Experimental ProceduresThe analysis will rely on a large, farm-level dataset on pesticide choices by U.S. corn and soybean farmers. The empirical model will be in the tradition of the empirical industrial organization literature that studies brand loyalty. Broadly, these methods rely on an individual-level discrete choice structural demand model in the context of a differentiated product industry.