Imperfect Competition in Agricultural Markets: evidence from Ethiopia

Abstract

Drawing upon unique transaction-level data from rural Ethiopia, this paper tests for general forms of imperfect competition among rural wholesale traders. These traders are key to the grain distribution system as they purchase from farmers and perform interregional trade. Tests show that traders in a typical source market engage in imperfectly competitive behavior in purchasing from farmers, driving down the price paid to farmers approximately 3%. In contrast, there is no conclusive evidence of imperfect competition among traders in the larger, more centrally located market studied. Thus, efficiency losses due to market structure are likely to be greatest in markets which also have poor road links and lesser volumes of marketed grain.