Price behavior in a dynamic oligopsony: Washington processing potatoes

Punishment strategics are necessary to sustain a collusive oligopsony in a repeated game context when demand is uncertain and only market variables ar e observable This article proposes a test for tacit collusion among potato processors in Washington state using a dynamic regime-switching model estim ated with a finite mixture method. The results support tile existence of pu nishment and collusive regimes and show the welfare losses due to anti-comp etitive behavior on the part of processors to be significant. Processors' o ligopsony power is enhanced by higher domestic production, imports, and exi sting stocks, but it is ameliorated by high capacity utilization rates and exports.