Kinnucan, Henry W.

Sullivan, Gregory M.

English

Research Papers in Economics

SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS  DECEMBER,  1987
MONOPSONISTIC  FOOD PROCESSING
AND  FARM  PRICES: REPLY
Henry Kinnucan and Gregory Sullivan
In their comment  on our article  on monop-  a-vis the price they receive under monopsony
sony pricing, Kim and Schaible (KS) claim that  (Pa)  Because  neoclassical  theory  indicates
an  algebraic  error was  made  in  the  twelfth  that pc = VMPa in competitive equilibrium,  a
equation of our model. We disagree. The error  y  manipulate equation ()  to yield  a
in the KS analysis inheres not in their algebra  swer to our question  is to replace VMP  with
but  in  their  failure  to  recognize  the  signifi-  which is how we arrived at equation (12).
cance  of the competitive industry assumption  a  o  e  ri  at eqion 
used in moving from equation (11) to equation  R  t  d 
(12) in our model.  Since this point  is a rather  analysis, in ourviewKSsimplyhaveshownan
subtle  one,  a more  careful  development  is in  alternative  way of manipulating our equation
order.  Consider again our equation (11):  (11).  Moreover,  we find it peculiar to label Pa
in their Figure 1 as a "price"  because it does
VMPa  not exist  (unless set by an outside authority)
Pa=  1 +  under either competitive or monopsony condi-
-^E>~~~~  tions and therefore has a vacuous economic in-
terpretation.
where  Pa  is  the  farm price  of catfish  under  Finally,  even if one  accepts KS's  approach
monopsony, e is the farm level elasticity of cat-  to  analyzing  the  monopsony  problem,  the
fish supply,  and  VMPa  is the marginal  value  claim that the so-called  error in our equation
product of catfish to the processor. This equa-  (12)  "invalidates" our  analysis  appears  too
tion can  be manipulated in a number of ways  strong:  by  their  own  admission,  it  simply
depending  upon the purposes of the analysis.  results  in  a  larger  estimate  of welfare  loss
We chose to manipulate it in such a way as to  relative  to their own.  Given  the research  ob-
yield an  answer to the question  of what role  jective of our paper (to estimate the producer
the elasticity of catfish supply plays in deter-  impacts  of  monopsony  supplanting  a  com-
mining the relationship between the price that  petitive  market  structure),  we  believe  our
producers  receive under competition (PC) vis-  estimate is the more accurate one.
REFERENCES
Kim,  C.  S.,  and  G.  Schaible.  "Monopsonistic  Food  Processing  and Farm Prices:  Comment."
So.  J. Agr. Econ. This issue.
Kinnucan,  H., and G. Sullivan.  "Monopsonistic  Food Processing and Farm Prices: The Case of
the West Alabama Catfish  Industry."  So. J. Agr. Econ. 18,2(1986):  15-24.
Henry  Kinnucan  is  an Assistant Professor,  Department  of Agricultural  Economics  and Rural Sociology, Auburn  University;  and
Gregory  Sullivan  is President,  Advanced Marketing  Systems, Dallas, Texas.
Copyright  1987, Southern  Agricultural Economics  Association.
225226

Kinnucan is an Assistant Professor, Department of Agricultural Economics and Rural Sociology, Auburn University; and Gregory Sullivan is President, Advanced Marketing Systems,

MONOPSONISTIC FOOD PROCESSING AND FARM PRICES: REPLY

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