Oligopoly Pricing in the World Wheat Market

Abstract

When the residual demand curve for wheat facing the United States and Canada shifts to the left, or when the exportable surplus of Australia is large, market-shares of these duopolists are reduced. Such circumstances lead to the formation of a market-share triopoly with Australia. The evidence for this proposition is examined and a model of triopoly pricing in the world wheat market is presented. If major exporters continue to be concerned with relative market-shares, the triopoly will reform, stocks will accumulate, and lower prices will prevail; however, prices will be more variable, and possibly higher, than before 1972/73.

A Reexamination of Price Dynamics in the International Wheat Market

“…This perception has been reinforced by the small number of major exporting regions (the United States, Canada, Argentina, Australia, and the European Union) that account for more than 80 percent of total exports. The implications of this market structure for trade, prices, and policies have been widely studied (McCalla 1966;Alaouze et al 1978;Paarlberg and Abbott 1986;Wilson 1989;Goodwin and Schroeder 1991;Mohanty et al 1995;Mohanty et al 1996).…”

“…One group of studies uses structural models, which incorporate noncompetitive and institutional behavioral assumptions, to analyze trade flows, policy effects, and prices (McCalla 1966;Alaouze et al 1978;Paarlberg and Abbott 1986). The other group of studies analyzes the pricing mechanism, particularly export price determination, to address issues regarding market structure, pricing efficiency, and government interventions (Ardeni 1989;Goodwin and Schroeder 1991;Goodwin 1992;Goodwin and Smith 1995;Mohanty et al 1995;Mohanty et al 1996).…”

Market Delineation and Price Leadership in the World Wheat Market: A Cointegration Analysis

“…McCalla (1966) concluded that the world wheat market could be characterized as a duopoly, with Canada assuming the role of price leader and the United States playing the role of a follower. With the emerging prominence of Australia as a major exporter of wheat, Alaouze, Watson, and Sturgess (1978) claimed that McCalla's duopoly model could be more accurately described as a triopoly. The conclusion of their study was that Canada acted as a price leader and the United States and Australia as price followers.…”

Incorporating Industrial Organization into Agricultural Trade Modelling

“…For example, a series of papers, starting with McCalla (1966), and including, among others, Alaouze et al (1978), and Thursby and Thursby (1990), has focused on imperfect competition in the world wheat market. Also, recent research by Perloff (1989, 1993) has examined the extent of international oligopoly in the rice and coffee markets.…”