The Welfare Implications of Oligopoly in Agricultural Input Markets.

The persistence of oligopoly in the agricultural input supply sector suggests that farmers' economic welfare is reduced since the price of agricultural inputs will be in excess of marginal cost. This paper focuses on the U.K. fertilizer and tractor industries and measures the welfare impact on U.K. farmers if oligopoly in these two industries could be removed. Using a computable partial equilibrium model, it is shown that depending on the definition of welfare loss, farmers' producer surplus could increase by as much as 30 percent with most of this being due to eradicating oligopoly in the fertilizer industry. These results suggest that the social costs of market power in these industries could be higher than those found for manufacturing industries in general. Copyright 1993 by Oxford University Press.