DP11548 Asymmetric Information and Middleman Margins: An Experiment with Indian Potato Farmers
In the Indian state of West Bengal, potato farmers sell to local middlemen be-
cause they lack direct access to wholesale markets. High-frequency marketing surveys
reveal large middleman margins and negligible pass-through from wholesale to farm-
gate prices. Farmers are uninformed about downstream wholesale and retail prices.
To test alternative models of farmer-middlemen trades, we conduct a field experi-
ment where farmers in randomly chosen villages are provided with wholesale price
information. Information had negligible average effects on farmgate sales and rev-
enues, but increased pass-through from wholesale to farmgate prices. These results
are consistent with a model of ex post bargaining between farmers and village mid-
dlemen 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.