EVENT: Economics Seminar

Abstract: In general, it is illegal for businesses who are in competition with one another to jointly negotiate with suppliers or customers. However, in some jurisdictions, farmers are exempt from these rules and can form 'collective selling groups' to negotiate with processors.

There are two types of farmer seller group. In the US, seller groups are able to act like cartels, and restrict members' output. In the EU and Australia, seller groups have limits on their size and are not allowed to restrict output. However, they can jointly bargain on behalf of members.

This paper considers the economic effects of collective selling by farmers under EU and Australian law. We develop a simple model involving imperfect competition between processors to buy farmers' output and allow farmers to form a seller group, subject to a legally imposed constraint on size. We show how collective selling effects the market outcome for both members of the seller group and for 'outsiders'. In particular, we show that collective selling by some farmers can either benefit or harm farmers who remain outside the seller group, depending on the interaction between processors and spot markets for farmers' output. We also analyse the welfare implications of collective selling.