Information Sharing and Oligopoly in Agricultural Markets : The Role of Cooperative Bargaining Associations . Working Paper 02-WP 313

We study incentives for information sharing among agricultural intermediaries in imperfectly compet-itive markets for farm output. Information sharing always increases expected grower and total surplus, but may reduce expected intermediary profits. Even when expected profits increase with information sharing, intermediary firms face a prisoner’s dilemma where it is privately rational to withhold infor-mation, given that other firms report truthfully. This equilibrium can be avoided if firms ’ information reports are verifiable, and if firms commit to an ex ante contract that enforces participation in informa-tion sharing. We show how agricultural bargaining legislation can implement such a contract with the bargained farm price representing a sufficient statistic of all information held by intermediary firms. Key words: agricultural markets, bargaining, information sharing, oligopoly. Many markets for farm output are plausi-bly characterized by some degree of imper-fect competition. This is certainly true in most fruit and vegetable markets where growers are numerous, and where intermediation is rela-tively concentrated. Processing or packing co-operatives, and cooperative bargaining among farmers, may in some instances be institutional responses to these market imperfections. For example, Sexton (1990) studies the role that processing cooperatives can play in promot-ing competitive behavior among oligopolistic processors. In the case of farm bargaining, a number of authors have argued that collective price negotiation by growers can countervail the market power of intermediaries; see for ex-ample, Helmberger and Hoos (1965) and Ladd (1964). These perspectives emphasize the ef-fects of cooperation on market structure, and on the transfer of economic surplus from inter-mediaries, and possibly consumers, to growers. An alternative view—the one we explore in this article—is that cooperative bargaining by farmers has efficiency consequences indepen-dent of changes in market structure. Brent Hueth is associate professor and Philippe Marcoul is assis