DP11548 Asymmetric Information and Middleman Margins: An Experiment with Indian Potato Farmers

Author(s): Sandip Mitra, Dilip Mookherjee, Maximo Torero, Sujata Visaria
Publication Date: September 2016
Keyword(s): cellphones, Middlemen, Pass-Through, price information, supply chains
JEL(s): L14, O12
Programme Areas: Industrial Organization, Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11548

In the Indian state of West Bengal, potato farmers sell to local middlemen because they lack direct access to wholesale markets. High-frequency marketing surveys reveal large middleman margins and negligible pass-through from wholesale to farmgate prices. Farmers are uninformed about downstream wholesale and retail prices.To test alternative models of farmer-middlemen trades, we conduct a field experiment where farmers in randomly chosen villages are provided with wholesale price information. Information had negligible average effects on farmgate sales and revenues, but increased pass-through from wholesale to farmgate prices. These results are consistent with a model of ex post bargaining between farmers and village middlemen where farmers also have the option of selling to other middlemen outside the village. They are inconsistent with models of risk-sharing contracts between middle-men and farmers, standard oligopolistic models of pass-through or search frictions.