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© 1995 Oxford University Press and the Foundation for the European Review of Agricultural Economics

research-article

Competition and collusion on the world coffee market

ERIC GIRAUD-HÉRAUD, CHANTAL LE MOUËL and VINCENT RÉQUILLART

INRA-ESR Grignon, France
INRA-ESR Rennes, France
INRA-ESR Castanet Tolosan, France

Chantal Le Mouël, INRA—ESR, 65, Rue de Saint-Brieuc, 35042 Rennes Cedex, France

Summary

A supergame-theoretic model of collusion is used to analyse the impact of vertical product differentiation on the sustainability of the new retention scheme adopted by most coffee-producing countries in 1993. Taking arabica as the high quality variety and robusta as the low one, theoretical results suggest that: (i) quality-type collusions are more likely to be sustainable when products are highly differentiated while (ii) in the case of a collusion involving all countries (corresponding to the current arrangement on the world coffee market), product differentiation implies opposite effects on the incentive to cheat for low and high quality-producing countries. Product differentiation would deter robusta-producing countries from defecting but strengthen the incentive for arabica-producing countries to cheat. Moreover, it appears that the only way to enhance the sustainability of this kind of collusion is to allow arabica-producing countries to set the retention share. In addition, the negative impact of consumer heterogeneity on the sustainability of both kinds of collusion is highlighted.

Keywords: world coffee market, product differentiation, collusion, repeated game theory


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