Measuring Returns to an Innovation in an Imperfectly Competitive Market: Application to Mechanical Harvesting of Processing Tomatoes in Taiwan

In this paper we develop and apply a general imperfect competition model to evaluate returns to a cost-reducing innovation. Most related work has applied models of perfect competition. Results demonstrate that welfare estimates derived from a model of perfect competition may be seriously distorted when the relevant market is imperfectly competitive. Application to mechanical harvesting of processing tomatoes in Taiwan reveals the potential for significant benefits to adoption of mechanical harvesting in Taiwan. However, farmers' incentives to adopt the harvester are attenuated because total benefits are reduced by oligopsony power in tomato procurement, and imperfectly competitive processors will capture a large share of the benefits that remain. Copyright 1996, Oxford University Press.