Agriculture

Profit margin

Market structure

Ecology

Barriers to entry

Biology

Microeconomics

Economics

Market economy

Imperfect competition

Intermediary

Competition (biology)

Subsidy

Profit maximization

Economic surplus

Welfare

Revenue

Free entry

Finance

Economic rent

Profit (economics)

American Economic Review

African agricultural markets are characterized by low farmer revenues and high consumer food prices. Many have worried that this wedge is partially driven by imperfect competition among intermediaries. This paper provides experimental evidence from Kenya on intermediary market structure. Randomized cost shocks and demand subsidies are used to identify a structural model of market competition. Estimates reveal that traders act consistently with joint profit maximization and earn median markups of 39 percent. Exogenously induced firm entry has negligible effects on prices, and low take-up of subsidized entry offers implies large fixed costs. We estimate that traders capture 82 percent of total surplus. (JEL L13, O13, Q11, Q12, Q13)

Competition and Entry in Agricultural Markets: Experimental Evidence from Kenya