The effects of market power on the stocks and prices of world coffee

The objective of this study is to explore the consequences of market power for optimal stockholding and price variations in the world coffee economy. Optimal storage decision rules which incorporate risk aversion under several market scenarios are considered. These generate a set of price and quantity series that can be compared with the historical data and to test the hypothesis proposed by Newbery that a monopolistic producer tends to undertake more storage than a competitive producer and hence price stability may increase in proportion to the dominant role played by the monopolist. The present study reveals that the world coffee market has been rather close to the competitive regime since the 1960s. As far as price variations are concerned, results are not always consistent with the Newbery hypothesis.