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A Note on First-Price Sealed-Bid Cattle Auctions in the Presence of Captive Supplies

  • John M. Crespi (a1) and Tian Xia (a2)
Abstract

The authors present an analytical model of a first-price sealed-bid cattle auction in which a spot and coordinated markets are interconnected. The model reveals that the conventional wisdom that market coordination negatively affects the bid price in the spot market is an oversimplification. The relationships between key market variables impact bids and bid shading in complex ways. While captive supplies can lead to lower spot prices, the price reductions do not necessarily stem from an increase in market power due to contracting. The model emphasizes the importance of several variables for future empirical studies.

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Corresponding author
Correspondence: John Crespi Dept of Economics 369 Heady Hall Iowa State University Ames, IA 50011-1070 Phone 515.294.1699 Email jcrespi@iastate.edu.
References
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Crespi, J.M., Saitone, T.L., and Sexton, R.J. 2012. “Competition in U.S. Farm Product Markets: Do Long-run Incentives Trump Short-run Market Power?Applied Economic Perspectives and Policy 34(4): 669695.
Crespi, J.M., and Sexton, R.J. 2004. “Bidding for Cattle in the Texas Panhandle.American Journal of Agricultural Economics 86(3): 660674.
Crespi, J.M., and Sexton, R.J. 2005. “A Multinomial Logit Framework to Estimate Bid Shading in Procurement Auctions: Application to Cattle Sales in the Texas Panhandle.Review of Industrial Organization 27(3): 253278.
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Xia, T, and Sexton, R.J. 2004. “The Competitive Implications of Top-of-the-Market and Related Contract-Pricing Clauses.American Journal of Agricultural Economics 86(1): 124138.
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Agricultural and Resource Economics Review
  • ISSN: 1068-2805
  • EISSN: 2372-2614
  • URL: /core/journals/agricultural-and-resource-economics-review
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