Competition and Entry in Agricultural Markets: Experimental Evidence from Kenya

Journal Article
Published on 1 December 2020

Abstract

African agricultural markets are characterized by low farmer revenues and high consumer food prices. Many have worried that this wedge is partially driven by imperfect competition among intermediaries. Bergquist and Dinerstein (2020) provide experimental evidence from Kenya on intermediary market structure. Randomized cost shocks and demand subsidies are used to identify a structural model of market competition. Estimates reveal that traders act consistently with joint profit maximization and earn median markups of 39 percent. Exogenously induced firm entry has negligible effects on prices, and low take-up of subsidized entry offers implies large fixed costs. The authors estimate that traders capture 82 percent of total surplus.

Authors

Lauren Falcao Bergquist

University of Michigan

Michael Dinerstein

University of Chicago