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Auctions in Grain Markets and Farmer Welfare

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Modifications to the Agriculture Produce Market Committee Acts have removed barriers to private participation and allowed trade outside regulated markets in the hope that it will help farmers and improve market infrastructure. But a key feature of regulated markets - the use of auctions to sell produce - has attracted relatively little attention. This paper argues that the auction mechanism is central to protecting farmers' interests in a given market, even in the presence of collusion among some large buyers. More generally, it is a transparent mechanism of price discovery and sets a benchmark with which any new market set up by a private player has to compete, thus mitigating any adverse impact on prices received by farmers.

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