E-commerce in oligopsonistic and relational markets: An empirical investigation of transaction costs in agricultural e-markets in India from farmers’ perspective

Abstract

Some important benefits of electronic marketplaces, especially in agriculture, include improved coordination, better and transparent price discovery, and reduced transaction costs. Agricultural markets in India have often been associated with high transaction costs and low returns to farmers. The government proposed, among different measures to overcome these challenges, creation of emarkets in agriculture. In this paper, we made an attempt to compare transaction costs incurred in marketing farm produce under non-electronic and electronic marketplace conditions in Karnataka, a state in India that pioneered reforms in agricultural marketing. To set the context of relational marketing, farmers’ perception of their relation with traders was surveyed. Exploratory factor analysis using polychoric correlations revealed the prevalence of relational marketing, as a mix of economic and non-economic items seemed to dictate farmer-trader relations. Transaction cost analysis was carried out and median transaction costs in e-marketplaces were not found to be significantly lower than those in in regular marketplaces. Investigations revealed that non-participation of substantial numbers farmers in actual electronic transaction process resulted in a perception among farmers that there was no discernible change in transaction costs. Synthesizing results of transaction cost analysis under prevalent conditions of relational marketing, we discuss the challenges that could prevent emarkets in delivering their objective of transparency, better price discovery and lower transaction costs. Policy implications and suggestions are discussed.