Interlocked Village Markets and Trader Idiosyncrasy in Rural India

Abstract

The role of traders and traditional exchange institutions has received little attention in empirical research on rural markets in developing countries. We use detailed data on transactions in a village commodity market in India and identify two observed anomalies: first, the repeal of the law of one price, and second, a trader‐idiosyncratic effect, namely that large volumes are sold to a trader who does not offer the best price. Econometric analysis demonstrates that trader idiosyncrasy can largely be explained by reciprocity motives in interlocked village markets. Reciprocity leads to market inefficiencies and can result in unexpected supply responses.

Traders’ market power along Indonesian rubber value chains

“…One of the traders’ strategies to implement and secure their superior bargaining position is by granting credits to smallholders. Subramanian and Qaim (2011) find that markets of agricultural output are interlocked with markets for other goods. This interlock explains why non-competitive (and therefore non-pareto efficient) market organisations can persist in an otherwise competitive market.…”

“…It is widely recognised that traders and middlemen of agricultural raw products are able to exercise a certain amount of market power, contradicting standard economic theory of perfect arbitrage and zero profits (Aker, 2010; Subramanian and Qaim, 2011; Piyapromdee et al , 2014). Osborne (2005) argues that the body of literature on intermediaries of agricultural markets is extensive when looking at the markets of industrialised economies.…”

Connecting Smallholders’ Marketplace Decisions to Agricultural Market Reform Policy in India – An Empirical Exploration

“…Farmers do not appear to be very confident about processes adopted by buyers, and hence an inclination towards more mechanical or electronic interventions to effect a sale. While farmers may be selling to the same buyer year after year on account of interlocked markets (as described in Bardhan 1980; Subramanian and Qaim 2011), there seems to be trust deficit between the farmer and trader due to conflicting goals or values (Stern and Reve 1980) or perception of dissimilarity by the farmer with the buyer (Mathews, Wilson, and Monoky 1972). Trust is an extremely critical element in marketing relations (Morgan and Hunt 1994), and mutual trust plays a greater role where asymmetry exists in relative influence among transacting parties (Smith and Barclay 1999).…”

Linking Credit with other Markets: A Review of the Issues in Rural Economies

“…Teh (1991) The Philippines Banik (1993) Bangladesh Swain (1998) Orissa in India Mansuri (2007) Punjab and Sindh in Pakistan Shami (2012) Hafizabad in Pakistan Credit-labour Employer lender lends during lean periods in return for a committed labour supply during peak periods Bardhan and Rudra (1978) WB, Bihar, and eastern UP in India Bhende (1986) Andhra Pradesh in India Bell and Srinivasan (1989) Bihar in India Sarap (1991) Orissa in India Reddy (1992) Andhra Pradesh in India Bhaumik and Rahim (1999) WB in India Credit-output Lender is an output trader (commission agent) who offers a working capital loan during cultivation in exchange for an assured output supply at a predetermined price Bell and Srinivasan (1989) Punjab in India Gill (1996) Punjab in India Bell et al (1997) Punjab in India Sohi and Chahal (2004) Punjab in India Reddy (1992) Andhra Pradesh in India Subramanian and Qaim (2011) Maharashtra in India Manig (1990) Pakistan Kashuliza (1993) Iringa in Tanzania Credit-land Credit is available in exchange for a land mortgage where the lender cultivates the land until dues are settled Bhaumik and Rahim (1999) WB in India (Continued) 166 Debdatta Pal the terms dictated by the landlords. This exploitation constrains poorer peasants within a debt trap.…”