PRICE BARGAINING WITHOUT SUPPLY CONTROL

Primary food producers are permitted to bargain as a group for higher prices. Supply response, however, is critical to the long-run success of producer cartels. This article presents a model that elucidates that role of supply response in agricultural price bargaining when no overt action is taken to limit quantity and participation in the cartel is voluntary. Free-riding, for example, is seen as having a dual nature: it undermines the cartel's influence at the negotiating table but it enhances the cartel's ability to sustain a negotiated price increase by attenuating supply response. That price bargaining can result in significant transfers from processors to producers when demand is inelastic and supply is uncontrolled is highlighted in the empirical application.Demand and Price Analysis,

"When Should Manufacturers Want Fair Trade?": New Insights from Asymmetric Information

We study a specific model of competing manufacturer-retailer pairs where adverse selection and moral hazard are coupled with non-market externalities at the downstream level. In this simple framework we show that a “laissez- faire" approach towards vertical price control might harm consumers as long as privately informed retailers impose non-market externalities on each other. Giving manufacturers freedom to control retail prices harms consumers when retailers impose positive non-market externalities on each other, and the converse is true otherwise. Moreover, in contrast to previous work, we show that, in these instances, consumers' and suppliers' preferences over contractual choices are not necessarily aligned.Competing hierarchies, resale price maintenance, retail externalities

An economic history of the Champagne contracts, lessons for regional development

This paper highlights the success factors of the governance of the Champagne supply chain. Scholars on economic organisation stress the role of the contractual enforcement to explain the stability of the economic exchanges and the ability of the economic and political actors to foster their own development (NORTH 1999). Our contribution detailed explicit and implicit mechanisms related to the vinegrower-merchant relations in the regional system. The Champagne region had the particularity to posses a double-head organisation, regrouping all the farms and firms involved in the agronomic, and commercial process of the regional wines. This private board is supported by an institutional environment, common market organisation, French rural acts, and national and international legislations on geographical indication. These legislatives and administrative components define precisely the productive and market rules. Rely on a longitudinal approach we reinterpret the way the interprofessionnal (general) agreement, essential part of the governance of the regional market, evolved during decades (BARRERE 2003). This rereading illustrates the interdependency between explicit and implicit enforcement mechanisms which foster the cooperation. We argue that asymmetric investments in advertising play a major role in the stability of the regional cooperation. The achievement of the reputation of the AOC Champagne by massive advertising and commercial investments mainly realised by the negociants is central to understand the convergence of both party strategies on a long term. These investments step in as catalyst of a negotiated environment and award the self-enforcing character of the contracts. It makes efficient the set of private arrangements and regulatory mechanisms designed to eradicate opportunistic behaviours. During all the second part of the 20th century, the form of the contractual agreements evolved. Governance tools were added and suppressed. However these forced or desired adaptations slightly alter the nature of the cooperative process. The flexibility of the private arrangement, as well as the comprehensive economic policy, ensures the durability of the general agreement in spite of crisis. These results backup the hypothesis of the new institutional economics on the necessity of complementary institutions to make the market efficient (AOKI 2001).

Modelling Subsidy as a Cooperative Advertising Channel Coordination Mechanism

This work considers the use of subsidy as channel coordination strategy in vertical cooperative advertising in which the manufacturer is the Stackelberg game leader and the retailer is the follower. While the retailer is directly involved in advertising, the manufacturer is indirectly involved through the provision of subsidy to aid the retailer in advertising the product. The work models the demand function using a multiplicative advertising-price-demand function, and obtains the players’ prices, the retail advertising effort, the manufacturer’s subsidy rate and the payoffs. The work observes that with increasing subsidy, the manufacturer’s price margin increases while that of the retailer reduces and eventual becomes zero with total subsidy. However, the manufacturer should not totally subsidise retail advertising since it would be counterproductive for him, while at the same time would lead to very large retail payoff. Thus with appropriate subsidy strategy, the prices and the payoffs, and eventually the entire channel can be coordinated. Keywords: Channel coordination, Vertical cooperative advertising, Stackelberg game, Advertising price-demand function, Subsidy rate

Cooperative Advertising for Competing Manufacturers: The Impact of Long-Term Promotional Effects

Producción CientíficaThe effectiveness of cooperative advertising programs is studied in a market where two competing manufacturers deal with an exclusive retailer and two products. Two twostage game theoretic models are developed to analyze the long-term effects of retailer’s promotions, which can be positive or negative, on the effectiveness of cooperative advertising. Closed-form equilibrium solutions are obtained and compared. We find that the level of product substitutability and the sign and magnitude of the long-term effects of retailer’s promotions on sales determine whether cooperative advertising should be offered and accepted by the manufacturers and retailer. In particular, depending on the level of product substitutability, cooperative advertising can benefit both the manufacturers and retailer even when retailer’s promotions negatively affects future sales. Conversely, it may not be in the interest of the manufacturers to offer cooperative advertising when the products are fairly undifferentiated regardless of the nature of the long-term effects of promotions. Finally, the manufacturers and retailer may refuse to respectively offer or participate in cooperative advertising programs that enhance total channel profits.Research of the first author is supported by the National Sciences and Engineering Council of Canada (NSERC). Grant # 1509. The second author’s research is partially supported by MEC under project ECO2014- 52343-P, co-financed by FEDER funds and the COST Action IS1104 “The EU in the new economic complex geography: models, tools and policy evaluation”

ROLE OF MARKETING AND PROCUREMENT SYSTEMS IN THE CONTROL OF AGRICULTURE

Marketing,

Modeling subsidy transfer in cooperative advertising using Stackelberg game theory

Dynamic game theoretic model approach stands out as a choice tool for considering subsidy transfer in cooperative advertising. In spite of the benefits of static models they are not known to have been used to study subsidy transfer. This work studies cooperative advertising subsidy transfer in a three-level manufacturer-distributor-retailer supply channel using Stackelberg static game. The retailer is directly involved in local advertising, while the manufacturer indirectly participates in retail advertising by providing subsidy to the retailer through the distributor. The work models the demand function using the effect of advertising on demand, and models the payoff using a revenue-expenditure formula. It considers four channel structures, and obtains the optimal advertising effort, the optimal participation rates, and the payoffs for each scenario. The work observes that the payoffs are large with distributor’s intervention subsidy, but best with subsidy transfer. They are worst with non-provision and non-transfer of subsidy. Thus, the supply channel members should prioritize the distributor’s participation in retail advertising either through subsidy transfer or intervention

Subject: Human Resource Management

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