Wednesday, January 13, 2010

Information and Prices

Soybean farmers in the Indian state of Madhya Pradesh sell their products in open auctions to intermediaries, who then re-sell to food processing companies. Because each market tended to have only a few intermediaries, it was relatively easy for them to collude to pay lower prices. The farmers had little access to prices being paid by the food processing companies or by intermediaries in other markets.

So what happened when internet kiosks that show prices in nearby markets were introduced into the markets? Prices went up (around 1.7% on average) - here's (pdf) a presentation by the study author and an article from the Economist.

What wasn't entirely clear to me was the incentives of the kiosk provider. The kiosks were provided by one of the food processing companies. Part of the motivation seemed to be to bypass the intermediaries but that doesn't really explain provision of the kiosks with nearby market prices.

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