Competition and Entry in Agricultural Markets: Experimental Evidence from Kenya

Working Paper
Published on 21 September 2019

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. Falcao Bergquist and Dinerstein (2019) 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 40%. Exogenously-induced firm entry has negligible effects on prices, and low take-up of subsidized entry offers implies large fixed costs. They estimate that traders capture 81% of total surplus.

Authors

Lauren Falcao Bergquist

University of Michigan

Michael Dinerstein

University of Chicago