Spatial Competition, Uniform Pricing, and Transportation Efficiency in the California Processing Tomato Industry

This study examines the role of spatial pricing in the allocation of processing tomatoes from farms to the thirty-two processing facilities located in northern and central California. A simple theoretical model illustrates that the industry's uniform pricing policy encourages market overlap and excessive transportation costs relative to FOB pricing. A nonlinear mathematical programming model is developed to determine the optimal allocation of processing tomatoes. This allocation is then compared to the estimated actual allocation. The analysis reveals foregone profits of only 1.9% from inefficient product allocation. Simulation results reveal significant competition among processors despite their separation in many cases by long distances. Copyright 1996, Oxford University Press.