Asymmetric Information and Middleman Margins: An Experiment with Indian Potato Farmers

HKUST IEMS Working Papers No. 2015-29


Sandip Mitra, Dilip Mookherjee, Maximo Torero, Sujata Visaria

In the Indian state of West Bengal, potato farmers sell to local middlemen because they lack direct access to wholesale markets. In high-frequency farmer marketing surveys we find that farmers are poorly informed about wholesale and retail prices, and there is a large gap between wholesale and farmgate prices. To test alternative models of farmer-middlemen trades, we conduct a field experiment providing farmers in randomly chosen villages with market price information. Information provision had negligible average effects on farmgate sales and revenues, but increased pass-through from wholesale to farmgate prices. The results are inconsistent with models of risk-sharing via contracts between middlemen and farmers. They are consistent with a model of ex post bargaining and sequential price competition between a cartel of village middlemen and a cartel of external middlemen. 

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