Elsevier

Marine Policy

Volume 104, June 2019, Pages 232-238
Marine Policy

Large buyers at a fish auction: The case of the Norwegian pelagic auction

https://doi.org/10.1016/j.marpol.2018.06.011Get rights and content

Highlights

  • Explores the role of large buyers at the Norwegian pelagic auction.

  • The hedonic price model explains 80.85% of the variance in the price of mackerel.

  • Large buyers pay lower prices than small buyers.

  • Large buyers pay lower prices than smaller buyers when transaction quantity increases.

  • Buyer size is associated with the valuation of fish size.

Abstract

This paper explores the role of large buyers at the Norwegian pelagic auction. The auction is electronic, with no product inspections and conducted on a first-price, sealed-bid basis. Hedonic price modelling was applied to auction data for mackerel for the main seasons of 2013–2015, which comprise 2447 transactions accounting for a traded volume of 581,613 t. A key finding is that the largest buyers pay lower prices than smaller buyers, all else being equal. For example, holding transaction quantity and fish size constant, the largest buyer pay about 3% less than the small buyers, implying a discount of NOK49.9 million for the three years covered by the study. This is attributed to a better understanding of the auction, including other buyers’ valuations. In addition, only the largest buyers can handle the largest catches, so there is less competition and lower prices in this market segment. Another key finding is that, holding other factors constant, the largest buyers pay a lower price for fish size than that paid by small buyers. With transaction quantity held constant, the price discount for fish size is NOK 0.146 (per 10 g) for the largest buyer and the price premium for the small buyers is NOK 0.099 (per 10 g). Findings are discussed and compared with past research focusing on fish auctions. Practical implications are also discussed.

Introduction

Auctions are often used to organise fish markets around the world, particularly at the port and wholesale levels of the value chain. Since auctions usually bring many sellers and buyers together and a great variety of fish species is generally available in various sizes, quantities and qualities auctions can reduce transaction costs for sellers and buyers. Auctions are typically organised by sellers, who aim to benefit from competition by extracting the maximum revenue from buyers [19]. Sellers usually decide the auction method and rules [19]. Given the assumptions of the revenue equivalence theorem [16], [19], [22], the auction type should not matter to sellers because they should always be able to extract the maximum revenue from buyers [19], [22].

In the real world, however, fish auctions are not always efficient; this has been shown in several empirical studies that have revealed imperfect competition, for instance different buyers paying different prices for fish of identical quality [4], [5], [7], [9], [10]. This is surprising given that information about products is usually readily available at auctions, implying well-informed buyers [10]. However, buyers may differ in many ways, which may lead to differences in their evaluations of product quality and hence their subsequent bidding behaviour. For example, buyers may differ in their experience with, and understanding of, price formation at the auction [13], [23]. Over time, some buyers may develop an intimate knowledge of particular sellers and the quality of their products, meaning that they know more about product quality than less experienced buyers [1]. In addition, the quality preferences of buyers’ customers may also differ, which may lead to differences in the buyers’ evaluations of the quality of a given product at the auction [4], [7], [9], [10]. Buyers also typically differ in the size and capacity of the catches/lots they can process or handle, which may influence their preferences with respect to both the quality and size of catches. For example, in order to avoid idle production capacity and exploit economies of scale, large processing firms might prefer a few large catches of reasonable quality to many small catches of high quality.

In this study hedonic price modelling is applied to examine formation of prices for mackerel at the Norwegian pelagic auction, paying particular attention to the largest buyers at the auction. More specifically, the paper explores whether large buyers pay different prices than small buyers, all other variables being equal. In addition, the paper explores whether large buyers value the size of catches/lots and fish differently from small buyers. Auction data for mackerel over three years (2013–2015), comprising 2447 transactions and accounting for a total of 581,613 t traded for NOK 3.87 billion (€430 million), were analysed. The Norwegian pelagic auction is an electronic auction conducted on a first-price, sealed-bid basis and is the largest auction market for pelagic fish in Europe.

This study contributes to the literature in several ways. Fish auctions around the world are organised in many different ways for no clear reason [5] and so empirical studies of different types of auction may improve the understanding of the efficiency of different fish auctions [5]. This study is amongst the first to explore price formation at a first-price, sealed-bid auction for fish and seafood (see [14] for a notable exception). The Norwegian pelagic auction also differs from many other fish auctions in that it is electronic, so there is no opportunity for physical inspection of products prior to bidding. This study also focuses on the buyer's perspective, whereas most studies of auctions have focused on the seller's point of view [15]. This is also the first published, empirical study of the Norwegian pelagic auction (see [2] for a conceptual discussion).

The next section provides a detailed description of the Norwegian primary market for pelagic fish, the auction system and the variables included in the study. Section 3 outlines the econometric models used to explore the role of large buyers at the auction. Section 4 presents the results and the key findings and their implications are discussed in Section 5.

Section snippets

The Norwegian first-hand market for pelagic fish

The primary sale of fish in Norway is legally protected through the Raw Fish Act and is organised by sales organisations that have the exclusive right to co-ordinate the primary sale of fish [2], [11]. This includes the right to set minimum prices if sales organisations and buyers’ organisations cannot reach agreement on minimum prices. The Raw Fish Act regulating the first-hand market came into force in 1938, following political pressure to protect fishers from the price consequences of

Model and econometric analysis

Previous econometric studies of fish auctions have shown that factors such as transaction quantity, daily sales quantity and seasonality are important determinants of fish prices [4], [7], [8], [13]. In this study the following potential determinants of auction price were analysed: transaction quantity, daily sales quantity, average fish size, stomach contents (feed), bid area and seasonality (weeks).

In the introduction it was argued that buyers may serve customers/markets with varying

Results

The first step of the modelling process was to test the restrictive forms of Model A, that is, restrictions associated with Models B-D3. Following the test procedure outlined above, these restrictions were tested using an F-test. Models B and C1 were firmly rejected at the 0.01 level of significance, as shown in Table 3. According to the test procedure, Model C2 was then tested against Model A, rather than Models B or C1. The p-value indicates rejection of the restrictions associated with model

Discussion

A key finding of the study is the strong evidence that prices at the Norwegian pelagic auction are influenced by buyer size, that is, large buyers pay lower prices than small buyers, all other things being equal. Another key finding is that large buyers benefit from a greater quantity discount than small buyers. The results also reveal that buyer size is associated with valuation of fish size, probably reflecting differences in the fish size preferences of the target customers/markets of buyers

Acknowledgement

The authors are grateful for the very useful comments provided by a reviewer and the auction data kindly provided by Norges Sildesalgslag.

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