Effects of Forward Sales on Spot Markets: Pre-commitment Sales and Prices for Fresh Strawberries

Increasingly, agricultural markets are vertically coordinated. Often a thinning spot market coexists with coordinated transactions, raising the question of how private coordination affects the market as a whole. One of the greatest challenges when analyzing such market-level effects is obtaining information on private transactions. We utilize publicly available data to evaluate how informal contracts in the fresh strawberry market affect spot market prices using a generalized autoregressive conditional heteroskedastic in mean (GARCH-M) model. We find that these informal contracts increased spot prices, as argued by some industry members, while the effect on spot price volatility varied by production region. Copyright 2010, Oxford University Press.