Market Power and Spatial Competition in Rural India
Abstract:
In this paper, I argue that market power of intermediaries plays an important role in contributing to low incomes of farmers in India. I study the role of spatial competition between intermediaries in determining the prices that farmers receive in India by focusing on a law that restricts farmers to selling their goods to intermediaries in their own state. I show that the discontinuities in market power generated by the law translates into discontinuities in prices. Increasing spatial competition by one standard deviation causes prices received by farmers to increase by 6.4%. To shed light on spatial and aggregate implications, I propose and estimate a quantitative spatial model of bargaining and trade. Using this structural model, I estimate that the removal of the interstate trade restriction in India would increase competition between intermediaries substantially, thereby increasing the prices farmers receive and their output. Estimates suggest that average farmer prices and output would increase by at least 11% and 7% respectively. The value of the national crop output would therefore increase by at least 18%

Download the paper at the following link:
www.princeton.edu/~sc20/papers/SC_spatial_competition.pdf

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Date: 13 November 2018, 14:30 (Tuesday, 6th week, Michaelmas 2018)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room C
Speaker: Shoumitro Chatterjee (Princeton/Cambridge)
Organising department: Department of Economics
Part of: International Trade Seminar
Booking required?: Not required
Audience: Members of the University only
Editors: Erin Saunders, Melis Clark