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Retail and wholesale market power in organic apples

Richards, Timothy J., Acharya, Ram N., Molina, Ignacio
Agribusiness 2011 v.27 no.1 pp. 62-81
retail marketing, wholesale marketing, market power, organic foods, apples, supply balance, prices, econometric models, Washington
The demand for organic fresh fruits and vegetable continues to grow at a rate far higher than the rest of the produce industry. The cost of meeting organic certification standards, however, has meant that supply has been slow to adjust. With limited supply, the authors hypothesize that organic suppliers enjoy more market power in bargaining over their share of the retail-production cost margin for fresh apples. We test this hypothesis using random parameters, generalized extreme value demand model (mixed logit) combined with a structural model of retail and wholesale pricing that allows conduct to vary by product attributes (organic or nonorganic) and time. They apply this model to data on wholesale prices of organic and nonorganic apples from Washington State, and retail data from five major metropolitan markets. They find that organic growers do indeed earn a larger share of the total margin than nonorganic growers, but this vertical market power is eroding over time as market supply adjusts. [EconLit citations: C35; D12; D43; L13; L41; Q13].