The Effect of Farmer Market Power on the Degree of Farm Retail Price Transmission: A Simulation Model with an Application to the Dutch Ware Potato Supply Chain

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ABSTRACT

A classic oligopoly/oligopsony model is developed to assess the degree of price transmission in a two-stage farmer–retailer supply chain. A simulation experiment based on data of the Dutch ware potato sector illustrates how price transmission may become imperfect and asymmetric as a consequence of retailer oligopsony power in the sense that farm price decreases are only partially passed on to consumers whereas farm price increases are more than fully transmitted. Oligopoly power by farmers to level their bargaining power vis-à-vis the retailers may even make the degree of price transmission worse.

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