Investigating the Effect of Switching the Iran Pistachios Market Structure on Consumers and Suppliers Welfare within the Framework of Spatial Equilibrium Model

مجله اقتصاد و توسعه کشاورزی

Article 3, Volume 29, Issue 1, April 2015, Pages 43-54   

Document Type: Research Article

DOI: 10.22067/jead2.v0i0.39003

Authors

F. Kashiri Kolaei; S.A. Hosseini Yekani^* ; S.M. Mojaverian

University of Agricultural Science and Natural Resources, Sari

Abstract

Introduction: Market power is an important factor affecting welfare. Existence of market power on the purchase side reduces supplier welfare. However, existence of market power on the sales side reduces supplier welfare. Some believe that the agricultural market structure is a monopoly. In fact, most of the agricultural products can be purchased by small firms and then delivered to consumers because they are perishable and need certain storage conditions. Thus, a monopoly condition is created in the market. In Iran, pistachios are amongst the agricultural products that can be important for investigating the market structure and for its effects on social welfare. This is due to the fact that the price of pistachios has fluctuated sharply because of many reasons such as the existence of major buyers such as the Rafsanjan Pistachios Producers Cooperative. Monopolistic firms determine the price that causes problems such as losing trade, creating extra profits for the seller and reducing consumer surplus. However, effective implementation of policies requires identification of market structure. In this context, in the present study for investigating the effects of Iran pistachios market structure on social welfare, the spatial equilibrium model was used which is based on maximizing net social payoff (NSP) and is able to consider the variety of market powers in suppliers and consumers.
Materials and Methods: One of the noteworthy features of the spatial equilibrium model is that it is able to examine the price equilibrium in each of the market power degrees. In this study, the conjectural variations parameter was used to consider the market power in the model. This index represents the reaction of firms to change the behavior of a particular firm. The final equations of Iran pistachios spatial equilibrium model can be seen in the following equations:
Max NSP = -

s.t - +
+

j
, , xfj,k, ti,j ≥0


Where NSP is the net social payoff, i and j respectively represent the pistachios supplier and consumer provinces and f represents the method of export of pistachios including by road, sea, air or railway. Vfjk is the yield per Kg of pistachios exports in different ways from the j-th province to the k-th country, Sfj is the pistachios exports capacity of the various ways from the j-th province, Xfjk represents the pistachios exports from the j-th province using the f-th way to the k-th country and mk is the imported pistachios of each country from Iran. Moreover, rij represents conjectural variation, and respectively represent pistachios supply and demand in the provinces j and i, and represent the total shipped pistachios from the i-th province to the j-th province and shipped pistachios for domestic consumption of j-th province, respectively. and respectively represent the demand and supply curve equations according to and . It should be noted that in the perfect competition market rij is equal to -1 while in a monopoly market it is equal to 0. In this study, the 2010 data were used for the calculation of the parameters. Also, for welfare investigating, the surplus of consumers and suppliers were calculated by the following equations:
Consumer surplus : CSj=
Producer surplus: PSi=

Results and Discussion: According to the results of this study, pistachios market structure is far from perfect competition in Iran and creating the perfect competition conditions leads to nearly a double increase in consumers’ welfare and a reduction in the suppliers’ welfare about 0.13%. In general, switching the Iran pistachios market structure has significant effects on domestic consumers but pistachios suppliers are less affected because they export more pistachios to foreign countries. Most of the changes in consumers’ welfare are made in the provinces that are mostly consumers of pistachios and have low or no pistachios production (such as Golestan, Hamedan, Ardebil, Chaharmahal and Bakhtiari, Kordestan and Markazi). In contrast, the lowest welfare changes are associated with the major pistachios supplier (such as Kerman, Yazd, Hormozgan and Sistan and Baluchestan).
Conclusion: Since pistachios are mainly exported and in fact the price of pistachios in the domestic market is higher than the price of Iranian pistachios in foreign markets, a significant increase in the price of pistachios has negative effects on domestic sales and consumers welfare. Since one of the main reasons for the high price of pistachios in Iran is related to market power and the existing monopoly, it is essential to establish certain policies to combat this monopoly. Pistachios exchange can be noted among the policies that are effective in changing the market structure. Also, creating conditions for the entry of new firms into the pistachios market is effective in reducing monopoly in it.

Keywords: Market Structure, Welfare, Spatial Equilibrium Model, Pistachios

Keywords

Market Structure; Welfare; Spatial Equilibrium Model; Pistachios

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