Access pricing with regulated downstream competition and upstream externalities

We examine the optimal funding of farmers who have organised their activity in a cooperative that controls the supply of an input factor and meets competition in the market for its processed product. Since the rival's cost is private information, it may earn a rent. We show that the optimal price on the input factor -- the access price -- discriminates against the rival because rent is more valuable in the cooperative, and the regulator, therefore, sacrifices some cost efficiency in order to shift rents. The result is derived in a simplified context, but applies to contexts with more participants and products. Oxford University Press and Foundation for the European Review of Agricultural Economics 2010; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org, Oxford University Press.