Some Evidence on Pecuniary Economies of Size for Farm Firms

Economies of size for farm firms in the United theoretical source is technological economies of States are a traditional interest of agricultural size from large transactions in the marketing economists (Heady). Continued interest in this process (Heady, Seckler and Young). An altertopic is related to the implication of economies native concept which suggests the possibility of size for the size structure of farm firms. The of price discrimination is that different purstructure issue has the potential to affect not chase sizes are different commodities. Though only current farm firms but also agricultural a pure monopoly in the agricultural input marketing firms, rural communities, and conmarket is not being suggested, the possibility sumers of agricultural commodities (Krause of sufficient monopoly power to practice price and Kyle). In the past, the relationship between discrimination is reasonable, especially if the economies of size and farm firm growth was spatial aspect of markets is considered (Bresthe basis for research. More recently, the relasler and King). Variations in the size of farmer tionship of economies of size to public policy purchases also make price discrimination feasissues has gained attention (Bardnam, Hall ible. Because the transaction costs of search and LeVeen, Seckler and Young). over a wider area and the fixed component of Previous research on economies of size transportation costs would be spread over a focused on technical economies of size internal larger purchase, it is plausible that farmers to the firm (Carter and Dean, Heady, Matulich, with larger purchases would be more price reMusser and Marable). Researchers rarely consponsive. This phenomenon suggests the price sidered the effects of pecuniary economies of elasticity of demand for inputs would vary disize arising from decreasing input costs. Inrectly with size of purchase a necessary stead, constant prices for variable inputs condition for price discrimination. The transusually were assumed. Krause and Kyle, Raup, action costs of resale of quantities larger than and Faris and Armstrong did consider pecunirequired for production or of organizing joint ary economies of size and concluded that they purchases could provide separation of markets are relevant only for very large farms well in for different sized commodities which is also excess of 2000 acres. In part, the assumption necessary for price discrimination. Thus, a of constant input prices reflects the absence of spatial concept of markets allows two sources of sufficient price data to support research on the pecuniary internal economies of size-econosubject. This assumption limited previous mies of scale in marketing and price discrimianalysis because any economies of size from nation. purchasing decisions were effectively elimiIt is important to note that price variations nated. can occur in a market for reasons other than The purpose of our article is to examine the the size of purchase. Prices of firms at different assumption of no pecuniary economies of size locations could differ because of the interrelafrom variable inputs. After a theoretical review tionship between volume of sales and technical of potential sources of pecuniary economies of economies of scale, as well as different transsize, we examine the hypothesis empirically portation costs between manufacturing and using a sample of sales data from a supplier of retail outlets. The temporal dimension of agriagricultural inputs. cultural input markets could be another source THEORETICAL BACKGROUND of price variation among transactions. The seasonal nature of agricultural production sugDecreases in variable input prices due to ingests that demand for many farm inputs would creasing quantities purchased have historicalhave seasonal variation. Given that agriculturly been classified as pecuniary internal econoal supply firms have economies of size in mies of size (Heady). The source of these economarketing, it is reasonable to expect prices of mies in the agricultural input sector has reinputs to be lower in seasons of peak demand. ceived little consideration. One standard Consideration of these variations is important