POLICY‐INDUCED CAPACITY CONSTRAINTS AND STRATEGIC INTERACTION IN PROCESSED FOOD MARKETS

S. McCorriston and Ian Sheldon

Journal of Agricultural Economics, 1992, vol. 43, issue 2, 149-159

Abstract: Attempts to curtail surplus agricultural production may result in excess capacity for food processors. This paper considers the impact of potential capacity constraints for different specifications of duopoly behaviour. If one firm's capacity is constrained, rents are shifted to the other under quantity competition, while both benefit under price competition. If both firms face capacity constraints, each benefits whatever the nature of competition. Consequently, food processing firms may benefit from cut‐backs in agricultural production or quantitative trade restrictions, depending on the nature of strategic interaction, though consumers always lose.

Date: 1992
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