Analyzing the Effects of Transaction Costs on Selling Strategy (Case Study: Market Selection for Selling Rice)

Farmers incur transaction costs in selling their crops on markets. These costs affect selling strategy. To analyze the effects of fixed and proportional transaction costs on market selection, at first, it is necessary to estimate the reduced form of market choice model with a conditional logit model. Semi-structural form model allows one to simulate the effects of fixed and proportional transaction costs on market choice. The data used in this research consisted of information about rice sellers in Mazandaran province, during 1382. Simulating the effects of transaction costs on market selection shows, 50 percent decrease in proportional transaction costs changed traded quantity from 75%, 9% and 16% to 79%, 11% and 10% in near, local and distant markets, respectively. Full information about market prices (or no fixed transaction cost) increased traded quantity from 75% to 80% in near markets, decreased it from 16% to 6% in distant markets and increased it from 9% to 14% in local markets. If proportional transaction costs decrease by 50 percent and farmers’ information were adequate, the share of selling at near, local and distant markets would change to 83%, 13% and 4%, respectively