Spatial Competition, Uniform Pricing, and Transportation Efficiency in the California Processing Tomato Industry

11 Pages Posted: 25 Mar 2020

See all articles by Catherine A. Durham

Catherine A. Durham

Purdue University

Richard J. Sexton

University of California, Davis - Department of Agricultural and Resource Economics

Joo Ho Song

Republic of Mozambique - Ministry of Agriculture

Date Written: February 1996

Abstract

This study examines the role of spatial pricing in the allocation of processing tomatoes from farms to the thirty‐two processing facilities located in northern and central California. A simple theoretical model illustrates that the industry's uniform pricing policy encourages market overlap and excessive transportation costs relative to FOB pricing. A nonlinear mathematical programming model is developed to determine the optimal allocation of processing tomatoes. This allocation is then compared to the estimated actual allocation. The analysis reveals foregone profits of only 1.9% from inefficient product allocation. Simulation results reveal significant competition among processors despite their separation in many cases by long distances.

Keywords: mathematical programming, processing tomatoes, spatial markets, transportation, uniform pricing, L660, Q110

Suggested Citation

Durham, Catherine A. and Sexton, Richard J. and Song, Joo Ho, Spatial Competition, Uniform Pricing, and Transportation Efficiency in the California Processing Tomato Industry (February 1996). American Journal of Agricultural Economics, Vol. 78, Issue 1, pp. 115-125, 1996, Available at SSRN: https://ssrn.com/abstract=3560406 or http://dx.doi.org/10.2307/1243783

Catherine A. Durham (Contact Author)

Purdue University

610 Purdue Mall
West Lafayette, IN 47907
United States

Richard J. Sexton

University of California, Davis - Department of Agricultural and Resource Economics ( email )

One Shields Avenue
327 Voorhies
Davis, CA 95616
United States
530-752-2219 (Phone)

Joo Ho Song

Republic of Mozambique - Ministry of Agriculture

Maputo
Mozambique

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