Unfair trading practices and countervailing power
Author(s)
Date Issued
2023
Type
article
Volume
119
Journal
Abstract
This paper investigates whether countervailing power of collective initiatives (cooperatives, producer organizations, associations) can mitigate unfair trading practices in agricultural markets. The study hypothesis is that collective initiatives exerting countervailing power can attenuate the imbalance in the distribution of bargaining power that is considered one of the main causes of unfair trading practices. Our findings suggest that in a multidimensional bargaining setting where all contract terms are negotiated at once, there is no theoretical expectation that exerting countervailing power necessarily results in a mitigation of unfair trading practices. To investigate the topic empirically, we used a data set measuring fairness perception of a sample of Italian kiwifruit producers. The data support the hypothesis that membership in collective initiatives increases the probability that a farmer perceives a transaction as fair. However, countervailing power does not counter all unfair practices in the same way. While patrons of collective initiatives perceive benefits in price and quality determination practices, no such effect was found for contract renegotiation. The analysis compares two policy approaches: supporting countervailing power and banning specific practices (such as EU Directive 633/2019). We conclude that countervailing power is less effective in targeting specific unfair practices, but it is less likely to determine efficiency loss because it does not impose constraints on contractual negotiations.