An examination of market structure and market power for annual and perennial ryegrass seed Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/02870z50x

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  • 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.
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