We evaluate United States Department of Agriculture (USDA) food procurement auctions. The Department spends nearly $1 billion a year for products for domestic feeding programs, such as the National School Lunch Program, and another $2.5 billion for international food programs. USDA's purchasing relies primarily on auction mechanisms designed to induce "hard" manufacturer price competition. We compare private-sector prices to low bids in 25,000 auctions, and find that typical private-sector prices substantially exceed USDA low bids for comparable products. We also assess the effects of competition on low bids. Low bids fall as the number of bidders increases, and the effects are nonlinear. Additional bidders have a very small effect on prices when there are already five or six bidders, but a stronger effect in markets with only one or two bidders. Even in this highly transparent bidding environment, competition matters.
The Americal'l Agricultural Economics Association devoted a full seminar ~ session at the 1972 meetings to discussing 11 our obsolete data systems.'' At M-that time, the AAEA Economic Statistics Committee pointed out quite vividly .....____ that the 11 • • • conceptual foundation of the (data)' system i~ crumbl ing-and has been for some time. 11 [l, p. 867]. The Economic Research Service, USDA, has also been exploring problem~_associated•with economic accounting in the food and fiber sector [2, 3]. Thus, economists both in and out of government .have been concerned about economic accounting for agriculture and the future direction it should take. The purpose of this paper is to suggest new con-\J" ceptual views of the food and fiber sector and its implications for account-; ng sys terns. Certain caveats are in order. The subject will be presented only in rough outline form. Volumes have been written.on accounting in economics. as the subject is both 11 broad 11 as well as 11 deep. 11 We shal 1 start with the premise that we are suggesting an ideal system; for it is recognized that at times ideals must be sacrificed in the real world. Many problems exist in implementing the suggestions below, one of which is the lack of data on some elements. The discussion will be limited to aggregate economic accounts for
While conventional industrial organization theory has been used to explain behavior of the food distribution oligopoly, a more careful analysis shows its behavior tendencies to be basically different from the manufacturing oligopoly. The larger distribution firm tends toward price competition while the smaller tends toward non price competition. The interaction between manufacturing and distribution oligopolies in the food industry provides a unique balance between progressiveness and economy which is not available in industries where the distribution oligopoly has not developed. This different consequence of large firms brings up some basic questions about antitrust objectives and philosophy.
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