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Open Access Publications from the University of California

Essays on the Economics of Supply Chain

  • Author(s): Lu, Liang
  • Advisor(s): Zilberman, David
  • et al.

Agrifood firms in a globalizing and competitive market, both in developing and developed countries, often undertake innovations in products and technologies. Innovators, both firms and other agents, develop supply chains to accommodate the nature of the innovations. In this dissertation, we explore the economics of supply chain design.

In the first essay, we analyze an innovator's supply chain design problem. We show that the innovator determines its overall level of production taking advantage of its monopoly power, derived from the innovation, in the output market, and behaves as a monopsony in buying feedstock from contractors. These decisions are constrained by the marginal cost of capital and the properties of production and marketing technologies. When the innovator is risk averse, risks in farm production, processing, and marketing will affect both processed output and the share of feedstock bought through contracts. In the second essay, we develop a framework to analyze adoption of indivisible technologies by small farms using a threshold diffusion model. The article shows that different supply chains may emerge to enable the adoption of these technologies. When the gain from adoption is not affected by scale or ownership of the technology, independent technology dealers or larger farmers may buy the indivisible equipment that embodies the technology and rent it to farmers or enable farmers to outsource the machine's services by supplying custom services. The article derives equilibrium prices and quantities in the output and equipment rental or outsourcing markets. The final chapter presents a conceptual framework depicting the issues and strategies of a firm with an innovation (in product or technology or system). To implement the innovation in terms of procurement of feedstock (intermediate inputs), production and processing, and marketing, the innovating firm undertakes strategic design of its supply chain. The paper illustrates with cases from developed and developing economies, draws policy implications, and lays out a research agenda.

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