Innovation in a multiple-stage, multiple-product food marketing chain

A model of a 3-stage food marketing chain is presented for the case of two products. Its extension of existing work is its capacity to examine non-competitive input and output markets in two marketing chains at once, and have them related by demand and cost interactions. The simulated impacts of market power in a single chain generally reproduce those delivered by previous authors. The impacts of market power in related chains are found to depend on linkages between chains in terms of interactions in consumer demand. Interactions between products in costs (economies of scope) generate an interesting result in that a possible market failure is identified that may be offset by the exercise of market power. The generation of farm-level innovation is seen to be largely unaffected by market power, but where market power is exercised the benefits are extracted from farmers and consumers. The conditions under which this occurs can also depend on demand interactions. The report identifies commercial and policy implications and future related research topics.