Proceedings of the Eighteenth Biennial Conference of the International Institute of Fisheries Economics and Trade, held July 11-15, 2016 at Aberdeen Exhibition and Conference Center (AECC), Aberdeen, Scotland, UK.
Suggested Bibliographic Reference: Challenging New Frontiers in the Global Seafood Sector: Proceedings of the Eighteenth Biennial Conference of the International Institute of Fisheries Economics and Trade, July 11-15, 2016. Compiled by Stefani J. Evers and Ann L. Shriver. International Institute of Fisheries Economics and Trade (IIFET), Corvallis, 2016.
We develop a theoretical model to address the effects of different market structures on the ex-vessel prices and consequently how this would impact the risk-sharing mechanism for harvesters and processors in fisheries. We focus our research on two market structures, price-at-landing (PL) and post-season pricing (PS). PL market structure is where ex-vessel prices are determined between harvesters and processors prior to realization of wholesale prices. PS market structure, modelled after Bristol Bay salmon ex-vessel market, is where a harvester signs a contract with a processor prior to the season without knowing how much they are getting paid at the end of the season. Then the ex-vessel prices are determined by processors after realization of wholesale prices. Our model show that when there is no uncertainty in wholesale prices, PL yields higher or equal ex-vessel prices than PS. With certainty, the bargaining power harvesters forgone by signing a contract may be translated into processors' market power in which may result in lower ex-vessel prices. When we introduce uncertainty in wholesale prices, PS yields higher ex-vessel prices than PL. With uncertainty, PS functions as a way for risk-adverse processors to share part of their wholesale price uncertainties with harvesters. In exchange, harvesters get higher ex-vessel prices. We also test out the model in a controlled-laboratory experiment setting. Our experiment data supports conjectures obtained from the theoretical model.