Dennis R. Henderson

Transaction Costs as Determinants of Vertical Coordination in the U.S. Food Industries

Vertical coordination is a more comprehensive concept than vertical integration, capturing market, contractual, and ownership coordination. Williamson suggests that transaction costs motivate the use of nonmarket arrangements to vertically coordinate production. This paper presents a vertical coordination index incorporating industry input-output relationships and nonmarket arrangements. In an econometric analysis, the vertical coordination index is utilized to examine transaction cost effects on food industry vertical linkages. Empirical results support the hypothesis that transaction costs are a primary motivation to vertically coordinate via nonmarket arrangements. Results also suggest the vertical coordination index is more robust than traditional vertical integration measure.

Pricing Accuracy and Efficiency in a Pilot Electronic Hog Market

Daily average prices for hogs sold through the Hog Accelerated Marketing System (HAMS), an experimental electronic market, were compared to those for similar grade hogs sold through Peoria terminal and Indiana direct markets. Results indicate that prices received by farmers using HAMS increased by

A Cross-Section Analysis of Intra-Industry Trade in the U.S. Processed Food and Beverage Sectors

0.94 to

International licensing of branded food products

0.99 per 100 pounds relative to their previous alternative. Using frequency of price change and average amount of price change as measures of efficient pricing behavior, the electronic market exhibited more efficient behavior than the traditional markets, i.e., average prices changed from one day to the next more frequently and by smaller amounts.

Transnational Structuring in Food Processing and Marketing: Introduction

This paper analyzes the determinants of variation across industries in levels of intra-industry trade (IIT) for a sample of 36 U.S. processed food and beverage industries in 1987, previous studies of intra-industry trade having focused on industry characteristics in the manufacturing sectors. The determinants predicted by IIT theory are measures of product differentiation, economies of scale, and imperfect competition; the results of this analysis indicate that IIT variation across the food and beverage industries is positively related to product differentiation, U.S. total trade, similarity of tariff barriers among trade partners, and economies of scope, but negatively related to industry concentration.

Electronic Marketing in Principle and Practice

This article presents an analysis of the strategic motivation for firms to license production and sale of their branded products overseas. First, the article documents the incidence of international brand-name licensing of food products, focussing on licenses from the US to foreign firms (outbound), production and marketing by US firms under license from overseas firms (inbound), and third-country licensing. Second, the economic incentives for a firm to offer outbound and|or accept inbound licensing are discussed, and third, the commercial considerations relevant to establishing terms of an international licensing agreement are examined.

Global markets for processed foods: theoretical and practical issues.

It is widely recognized that international markets are increasingly important to the economic viability of the U.S. food and agricultural sector. During the past three decades, for example, the value of the sectors exports, when measured in real terms, has more than doubled and, when measured as a share of the sectors gross domestic product, has increased by 80%. Further, with an estimated income multiplier for agricultural and food exports that exceeds 2.3, the overall American economy realizes significant benefits. It is also recognized that international marketings are highly variable. Indeed, much of the boom in the agricultural economy during the 1970s was directly attributed to an unparalleled rate of growth in exports, just as the bust in the first half of the 1980s was tied to a sharp decline. The sources and consequences of this variability have been the subject of much speculation, discussion, and research. Closer examination, however, reveals that much of the variability has been caused by wide swings in exports of primary commodities, essentially the feed grains, food grains, and oilseeds. By contrast, international sales of high-value agricultural products, including processed commodities and manufactured foods, have been more stable. Since 1980, for example, the standard deviation in the annual value of primary commodity exports has been 2.5 times larger than for high-value products. At the least, therefore, stability argues that export markets for high-value products deserve particular attention. Furthermore, estimates of income multipliers suggest that the economy-wide gains from high-value exports (2.9) are more than 50% higher than those from primary commodities (1.8), mainly because of further processing and other valueadding activities. A comparison of the profile of U.S. trade in food and agricultural products with the world market, however, raises questions regarding the international competitiveness of American firms. FAO trade data indicate that during the past twenty-five years, high-value products have accounted for roughly three-fourths of all world trade in agricultural products, whereas they have made up less than 45% of U.S. agricultural exports. By contrast, more than 90% of U.S. agricultural imports are in highvalue categories. This suggests that the American food and agricultural sector is, in essence, transferring to other countries many of the jobs and much of the income that can be earned by producing value-added products for world markets.