<div>
<p>First Essay: We study the effect of entry of ethanol
plants on the spatial pattern of corn prices. We use pre- and post-entry data
from corn elevators to implement a clean identification strategy that allows us
to quantify how price effects vary with the size of the entrant (relative to
local corn production) and with distance from the elevator to the entrant. We
estimate Difference-In-Difference (DID) and DID-matching models with linear and
non-linear distance specifications. We find that the average-sized entrant
causes an increase in corn price that ranges from 10 to 15 cents per bushel at
the plant’s location, depending on the model specification. We also find that,
on average, the price effect dissipates 60 miles away from the plant. Our
results indicate that the magnitude of the price effect as well as its spatial
pattern vary substantially with the size of the entrant relative to local corn
supply. Under our preferred model, the largest entrant in our sample causes an
estimated price increase of 15 cents per bushel at the plant’s site and the
price effect propagates over 100 miles away. In contrast, the smallest entrant
causes a price increase of only 2 cents per bushel at the plant’s site and the
price effect dissipates within 15 miles of the plant. Our results are
qualitatively robust to the pre-treatment matching strategy, to whether spatial
effects are assumed to be linear or nonlinear, and to placebo tests that
falsify alternative explanations.</p><p><br></p></div>
<p>Second Essay: We estimate the cost of transporting corn and the resulting degree
of spatial differentiation among downstream firms that buy corn from upstream farmers
and examine whether such differentiation softens competition enabling buyers to
exert market power (defined as the ability to pay a price for corn that is
below its marginal value product net of processing cost). We estimate a structural model of spatial competition using
corn procurement data from the US state of Indiana from 2004 to 2014. We adopt
a strategy that allows us to estimate firm-level structural parameters while
using aggregate data. Our results return a transportation
cost of 0.12 cents per bushel per mile (3% of the corn price under average
conditions), which provides evidence of spatial differentiation among buyers.
The
estimated average markdown is $0.80 per bushel (16%
of the average corn price in the sample), of which $0.34 is explained by
spatial differentiation and the rest by the fact that firms operated under
binding capacity constraints. We also find that
corn prices paid to farmers at the mill gate are
independent of distance between the plant and the farm, providing evidence that
firms do not engage in spatial price discrimination. Finally, we evaluate the effect of hypothetical mergers on input markets and farm
surplus. A merger between nearby ethanol producers eases competition, increases
markdowns by 20%, and triggers a sizable reduction in farm surplus. In
contrast, a merger between distant buyers has little effect on competition and markdowns.</p><p><br></p>
Third
Essay: We study the dynamic response of local corn prices to entry of ethanol
plants. We use spatially explicit panel data on elevator-level corn prices and
ethanol plant entry and capacity to estimate an autoregressive distributed lag
model with instrumental variables. We find that the average-sized entrant has
no impact on local corn prices the year of entry. However, the price
subsequently rises
and stabilizes after two years at a level that is about 10 cents per bushel
higher than the pre-entry level. This price effect dissipates as the distance
between elevators and plants increase. Our results imply that long-run (2
years) supply elasticity is smaller than short-run (year of entry) supply
elasticity. This may be due to rotation benefits that induce farmers to revert
back to soybeans, after switching to corn due to price signals the year the
plant enters. Furthermore, our results, in combination with findings in essay 2
of this dissertation, indicate that ethanol plants are likely to use pricing
strategies consistent with a static rather than dynamic oligopsony competition.
| Identifer | oai:union.ndltd.org:purdue.edu/oai:figshare.com:article/12702266 |
| Date | 29 July 2020 |
| Creators | Jinho Jung (9160868) |
| Source Sets | Purdue University |
| Detected Language | English |
| Type | Text, Thesis |
| Rights | CC BY 4.0 |
| Relation | https://figshare.com/articles/thesis/ESSAYS_ON_SPATIAL_DIFFERENTIATION_AND_IMPERFECT_COMPETITION_IN_AGRICULTURAL_PROCUREMENT_MARKETS/12702266 |
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