Entry and Spatial Competition of Intermediaries: Evidence from Thailand's Rice Market

How does the market power along the agricultural value chains mediate the effects of policies on the welfare of farmers? Using microdata on farmers and rice mills in Thailand, I document heterogeneity in the spatial density of rice mills. I further provide reduced-form evidence that a one standard deviation increase in local competition among rice mills leads to a 7.7% increase in farmer prices. Informed by the empirical findings, I propose and estimate a quantitative spatial model that accounts for the market power and entry-location choices of intermediaries. I then simulate two policy counterfactuals. I find that gains to farmers from a country-wide improvement in road infrastructure are regressive; the percentage increase in income of the top decile farmers is on average 11% larger than that of the bottom decile. Changes in the entry decisions of the rice mills further exacerbate the regressive effect, more than doubling the gap between the percentage change in income of the top and bottom decile farmers. The second counterfactual simulation shows that the market power of intermediaries could lead to a lower than socially optimal level of technology adoption among farmers.