Competition in Local Food Markets
By: Connolly, Cristina; Klaiber, H. Allen
Connolly, Cristina; Klaiber, H. Allen, Competition in Local Food Markets, Journal of Agricultural and Resource Economics, Volume 44, Issue 2, May 2019, Pages 328-344
While local food production plays an increasingly prominent role in U.S. agriculture, there is growing concern about oversaturation. Using a national dataset, we identify locational attributes that are conducive to the establishment of direct-marketing operations and assess competitive behavior. Our model links firm-entry decisions to market size using reduced-form profit functions, which are characterized by the cost of agricultural land and demand variables. We find significant heterogeneity in the required population to support direct-marketing entrants and show that markets become perfectly competitive upon entry of the third direct-marketing establishment, with heterogeneous market potential for new entrants.