Jesse Strzok is a production economics specialist with the Eastern New York Commercial Horticulture program. Based out of the Washington County Cornell Cooperative Extension office, Jesse focuses on market and price research relevant to specific ag-industries and the development and/or improvement of sustainable horticulture programs. Jesse is one of the few program educators that originally founded the idea to create a price index this summer. When asked about his ideas behind the project, Strzok provided a thorough description regarding his motivation and passion for our mission. 

 "For those that have been following along this summer, you have seen that we now have average farmers market prices of different commodities available each week.  How is this information we have collected and analyzed useful to us (you and me)?  Most notably this is not available anywhere else - the USDA collects and provides key wholesale and retail data but not for famers' markets in our region (yes, it is available in certain areas - https://www.ams.usda.gov/market-news/local-regional-food )."

"In the economics field of industrial organization, we approach the behavior (production, pricing, employment, etc.) of the firm/individual in a marketplace with mathematical rigor. A rational, self-interested, profit-maximizing firm will, in game theory, make its decision based solely on this given information, generally giving us elegant equations as answers. Market structures of producers range from perfect competition (defined as a situation in a market where many firms are producing the same good) to monopoly (defined as a situation where only one firm is producing the good). What kind of market structure are you facing? How should the firms participating in each market structure price their product? How much product should be brought to the market?"

"In light of this election year, I'm going to skip monopoly and suggest we look at two parties in this section; let's take a look at a duopoly (two producers in the market). How should the two firms compete in the market with their product? We have two principal models; Bertrand and Cournot."

"In the Bertrand model the firms compete on price.  The best-response solution to this repeated game model is to price the product equal to the cost (technically the marginal cost) of the product. Side note: this is a Nash equilibrium - think John Nash and A Beautiful Mind."

"In the Cournot model, firms compete on the amount of output they will produce; quantity. Who wants to think about this model and give me an answer? Hint: it's not the same as the Bertrand solution and it's a bit more complex!"

"Next, when it comes to perfect competition, firms/producers (I've used these words interchangeably) are "price-takers." They sell their product at the market price and their quantity has no influence on that price. I would argue this is not something we're seeing at most farmers' markets. So, in industrial organization, as in the real-world, we often see complicated and interesting market structures."

"What these basic economic models don't generally take into account is any product differentiation (difference of quality in the product for example) where with most of the products offered I see a range.  Does this mean we shouldn't use these models? I believe they can still be very useful, good for thought, and used as an educational tool. We also have models for product differentiation which become very complex.

What would I suggest to you?"

"Maybe you don't solve your quantity or pricing problem for a market by solving a Cournot model; by forcasting demand from last year's sales, weather, fuel prices, etc.; or by selling at some percentage above your cost which still clears the market; but remembering to farm from the "shoulders up" can make a world of difference."