Incentives and Impacts of Vertical Coordination in a Food Production-Marketing Chain: A Non-cooperative Multi-Stage, Multi-Player Analysis

Vertical coordination in the form of contracts and integration is common where changing consumer preferences require producers to adapt to changing market situations that require a steady supply of quality controlled products. We identify two vertical coordination mechanisms that are common in the r...

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Bibliographic Details
Published inJournal of industry, competition and trade Vol. 18; no. 1; pp. 59 - 95
Main Authors Asirvatham, Jebaraj, Bhuyan, Sanjib
Format Journal Article
LanguageEnglish
Published New York Springer US 01.03.2018
Springer Nature B.V
Subjects
Coordination
Economic models
Economic Policy
Economics
Economics and Finance
European Integration
Food
Food production
Incentives
Industrial Organization
International Economics
Market strategy
Market structure
Marketing
Microeconomics
R & D/Technology Policy
Vertical integration
Vertical coordination
Tapered integration
Q13
Vertical contract
Non-cooperative oligopoly
Production-marketing chain
Strategic behavior
Vertical integration
L13
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Summary:Vertical coordination in the form of contracts and integration is common where changing consumer preferences require producers to adapt to changing market situations that require a steady supply of quality controlled products. We identify two vertical coordination mechanisms that are common in the real world but often ignored by the literature due to their inherent complexity. Using economic models, we measure the incentives and impact of market agents’ strategic behavior and strategies along a hypothetical food production-marketing chain. Our results reestablish the importance and value of open market and contracts in a world where both are gradually replaced by consolidation and integration. We also find that in most types of vertical coordination there is a critical limit to the levels of coordination beyond which it is not profitable to coordinate. We recommend that competitive policies could focus more on market structure where independent firms thrive rather than on the degree of coordination per se.
ISSN:1566-1679
1573-7012
DOI:10.1007/s10842-017-0247-2