Abstract:
This thesis examines how two grass seed industries
respond to changes in the production environment. Two sets
of factors are necessary to understand what adjustments
would be made. First, it is necessary to know the nature of
the markets and whether market power is being exerted.
Second we need to know the relative demand and supply
elasticities for the products.
The Oregon cool season grass seed industry is selected
for a number of reasons. First, the banning or restriction
of grass seed burning is a legislative change that would
increase production costs. Second, U.S production and
processing of cool season grass seed is concentrated in the
Willamette Valley of Oregon. Finally, the Federal Plant
Variety Act of 1970, has given the firms in the grass seed
industry exclusive rights over the private varieties that
they develop for a period of 18 years. Having an exclusive
right over the marketing of specific varieties may provide
opportunity for some price-setting behavior.
The behavioral demand equations at the wholesale level
and the supply equations at the farm level are estimated
The degree of market power is parameterized and included in
demand and supply equations using the methodology introduced
by Bresnahan[l982], The demand and supply equations in
conjunction with the structural equation obtained by solving
for the first order condition are simultaneously estimated
using a non-linear Three Stage Least Squares regression to
obtain the estimates for all the parameters including the
parameters of market power.
While the t-test suggests that perfectly competitive
market structure cannot be rejected, the large standard
errors for both grass seed types reduce the conclusiveness
of these results. Subsequently a series of the Wald tests
were implemented for each market. Tests fail to reject the
null hypothesis of a perfectly competitive market structure
for both markets but did reject both monopoly or monopsony
market structure.
Based on a perfectly competitive structure, the demand
and supply equations at the farm level were then
constructed, and demand and supply elasticities were
estimated at that level using two stage least squares. For
annual ryegrass the demand elasticity is three times greater
than the supply elasticity, suggesting that approximately
three-fourths of production cost increase would be borne by
the producers. In contrast, for perennial ryegrass the
demand and supply elasticities at the farm level were almost
the same. This suggests that a production cost increase
would be distributed among the producers and consumers of
perennial ryegrass seed in a largely equal fashion.
