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The Competitive Implications of Top-of-the-Market and Related Contract-Pricing Clauses

Tian Xia and Richard J. Sexton

American Journal of Agricultural Economics, 2004, vol. 86, issue 1, 124-138

Abstract: This article examines the competitive implications of contract pricing arrangements, which link the contract price to the subsequent cash price. We focus on so-called “top-of-the-market pricing” (TOMP) in cattle procurement. The TOMP clause is shown to have anticompetitive consequences when the same buyers who purchase contract cattle with the TOMP clause also compete to procure cattle in the subsequent spot market. The TOMP clause reduces packers' incentives to compete aggressively in the spot market. Although TOMP pricing is not in producers' collective interest, rational sellers may nonetheless sign these contracts with little or no financial inducement. Copyright 2004, Oxford University Press.

Date: 2004
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American Journal of Agricultural Economics is currently edited by Madhu Khanna, Brian E. Roe, James Vercammen and JunJie Wu

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