the area. The result is inevitable when the association continues 

 to press for a price beyond that the market conditions warrant. The 

 farmers price themselves out of the market, the industry suffers 

 and the association soon falls apart, v 



The above two cases clearly show Rome of the strengths and weaknesses 

 of price bargaining, Civen circumstances where canning companies are 

 paying less than the equilibrium price — that is, less than the price 

 which would prevail under perfect competitive conditions in the market 

 — the bargaining association has possibilities of successfully rais- 

 ing prices up to that point. Given a price already equal to the equi- ' 

 librium price, a bargaining association is inviting failure when it 

 continues to demand higher prices* 



Cn the other hand, if the processors have advantages in bargaining 

 power and persist in offering a lower price than the equilibrium price, 

 the agricultural producer will suffer. He may continue to produce 

 at this disadvantage until some time as he finds more profitable 

 alternative use for his resources, 



A good analysis of the theory of bargaining in the milk industry is 

 given by Nicholls, 6/ He used the example of a cooperative which 

 embraces all milk producers in the area and which has control of its 

 members' production. This cooperative bargained with. the one distri- 

 butor in the area, the entry to other distributors being closed. It 

 became a clear case of one buyer bargaining with one seller. Nicholls 

 concludes his analysis by sayings 



"We may conclude by stating that while it is possible to 

 fix definite limits within which price may be agreed 

 upon under bilateral monopoly, the exact price level 

 within these limits is indeterminate from a strictly 

 economic point of view. The actual price will depend 

 upon the relative bargaining power of the two agencies 

 which depend in turn on certain non-economic (essen- 

 tially political) forces," 



The conclusion reflects that price is not definitely established and 

 that the actual price will depend upon the relative bargaining power 

 of the two agencies* Consequently all factors which tend to increase 

 the bargaining power of either side become important in the determina- 

 tion of price. 



6/ Nicholls, Um» Imperfect Competiti on Uithin Agricultural Ind ustries, 

 Iowa State College Press, 194-1 > P« 172, 



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