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European Review of Agricultural Economics 2007 34(4):429-459; doi:10.1093/erae/jbm031
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© Oxford University Press and Foundation for the European Review of Agricultural Economics 2007; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org

Disciplining exporting state trading enterprises under economies of scale and oligopoly

Margherita Scoppola

University of Macerata, Italy

Corresponding author: Margherita Scoppola, Dipartimento di Studi sullo Sviluppo Economico, University of Macerata, Piazza Oberdan 3, 62100 Macerata, Italy. E-mail: scoppola{at}unimc.it

Received June 2006; Revision received August 2007. The paper develops a two-stage duopoly model to investigate the effects of eliminating subsidies to state trading enterprises (STEs) as discussed in the WTO Doha Development Agenda negotiations on agriculture. Unlike the STE, the private firm may choose to integrate vertically in order to avoid transaction costs arising from dealing with downstream operators. The theoretical model shows that eliminating subsidies to the STE may induce a change in market structure and not necessarily lead to increased competition. In fact, if transaction costs are large enough relative to fixed costs, then the result may be a monopoly by the private firm.

Keywords: state trading enterprises, multinational firm, WTO, international market structure

JEL classification: F12, F51, Q17


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