Interlinked Transactions and Competition: Experimental Evidence from Cocoa Markets
This study uses an experiment in Sierra Leone, which subsidizes traders who buy cocoa from farmers
Abstract
Interlinked transactions in which output prices are determined jointly with the terms of credit are an important feature of many business relationships. In these instances, understanding competition requires information on credit, as well as prices. We illustrate this idea using an experiment in Sierra Leone, which subsidizes traders who buy cocoa from farmers. Subsidized traders pass value to farmers either through cocoa prices or the provision of credit. A model demonstrates how the experiment can inform estimation of the degree of differentiation among traders, which is found to be low. Additional results on the pass-through of world price shocks, market size, and quantity purchased by traders also suggest that the market for farmers’ output is competitive.
This is an output of the World Bank’s Strategic Research Program
Citation
Casaburi, Lorenzo; Reed, Tristan. (2020) “Interlinked Transactions and Competition: Experimental Evidence from Cocoa Markets”. May 2020. Revision of BREAD Working Paper no. 508”
Link
Interlinked Transactions and Competition: Experimental Evidence from Cocoa Markets