Cutthroat or cartel? an analysis of price competition in farmers markets.

Abstract

While the civic and nutritional implications of farmers markets have captured researchers' attention, few have focused on how the "markets" in farmers markets actually work. This paper opens a crucial but largely unexplored field of economic inquiry: how are the prices consumers pay at the farmers market determined? An original dataset of farmers market prices, gathered across five cities over a full calendar year, allows a quantitative look at two specific questions: first, how do prices move as more vendors enter and compete to sell a product? Second, what relation do farmers market prices have to prices in conventional grocery outlets? Using a set of simple regressions and a novel meta-analysis technique, I find meaningful and statistically significant relationships between vendor numbers and price for some products, but not for others. More perishable products seem to display the effect much more powerfully, a result which agrees with theory on search costs and product differentiation. Another important finding is that even where median prices do not decline with vendor count, minimum prices often do, suggesting the diligent consumer can benefit. I also find evidence of price collusion in some markets and products. Finally, I find no discernible, consistent relationship between farmers market prices and supermarket prices. In addition to better informing consumers, these results suggest that policy-makers who wish to expand farmers markets as an option for the general public - and especially lower-income shoppers - have some options for fostering a more competitive environment. But even at the farmers market there is no free lunch, as there are likely trade-offs between consumer welfare and economic rents we may value for local agriculture.