Publication Date:
2017-01-07
Description:
We study the effects of technological progress in upstream agri-food markets on vertical differentiation in a downstream duopoly. The duopolists, who enjoy seller and buyer market power, transform homogeneous agricultural input into goods of varying qualities. We find that a cost-reducing innovation increases differentiation, and this differentiation comes from a sizable decrease in quality of the low-quality firm. The intensification of differentiation results in a market-expansion effect that largely benefits consumers. The distribution of benefits between upstream and downstream industries are consistent with the observation of a decreasing trend in farmers’ share of the retail food dollar.
Print ISSN:
0165-1587
Electronic ISSN:
1464-3618
Topics:
Agriculture, Forestry, Horticulture, Fishery, Domestic Science, Nutrition
,
Economics
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