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POLICY‐INDUCED CAPACITY CONSTRAINTS AND STRATEGIC INTERACTION IN PROCESSED FOOD MARKETS
Author(s) -
McCorriston S.,
Sheldon I. M.
Publication year - 1992
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/j.1477-9552.1992.tb00211.x
Subject(s) - duopoly , economic rent , competition (biology) , economics , production (economics) , strategic interaction , microeconomics , food processing , agriculture , capacity utilization , industrial organization , economic surplus , cournot competition , market economy , welfare , ecology , chemistry , food science , biology
Attempts to curtail surplus agricultural production may result in excess capacity for food processors. This paper considers the impact of potential capacity constraints for different specifications of duopoly behaviour. If one firm's capacity is constrained, rents are shifted to the other under quantity competition, while both benefit under price competition. If both firms face capacity constraints, each benefits whatever the nature of competition. Consequently, food processing firms may benefit from cut‐backs in agricultural production or quantitative trade restrictions, depending on the nature of strategic interaction, though consumers always lose.