Environmental Regulation, Market Power and Price Discrimination in the Agricultural Chemical Industry

In the context of the market for any specific agricultural chemical, whether U.S.
farmers will be better off under an integrated single market or market segmentation turns
on whether the United States is the high priced market under market segmentation. This
is an empirical question. Whether a harmonization regulation that reintegrates the U.S.
and Canadian agricultural chemical markets is beneficial also depends on whether the
U.S. is the high price market for agricultural chemicals in general, and if not, for which
agricultural chemicals it is the high priced market, for which it is the low price market,
and by how much the prices of the different chemicals would change under
harmonization..

3. Sources of Agricultural Chemical Market Segmentation between Canada and the
United States

Many of the markets for agricultural chemicals in Canada and the United States
are spatially adjacent. For example, some farmers on one side of the Alberta-Montana
border (the 49^th Parallel) are literally a stone’s throw away from farmers on the other side
of the border but cannot legally purchase the same agricultural chemical from the same
chemical dealer. Absent regulatory barriers, arbitrage would almost surely guarantee that
prices in those spatially adjacent markets would exhibit very similar patterns and on
average be about the same.⁵ These markets are segregated because of regulation.

⁵ It is well known that prices for homogeneous products are frequently disperse among sellers within well-
defined competitive markets. Sorenson, for example, reported substantial price variation for identical drugs
among pharmacies in two small towns in up-state New York where each pharmacy was required to post its
prices for over 150 commonly used pharmaceuticals. Search models in which information is costly provide
explanations of such phenomena (see, for example, Stigler, Salop and Stiglitz, Carlson and McAfee, and
McMillan and Morgan). However, they do not imply that average prices from randomly selected samples
drawn from the same population in a common market should be statistically significantly different.

<<   4   5   6   7   8   9   10   >>

More intriguing information