Quarterly Journal of International Agriculture No. 1/10
Competition in the gum arabic market:
a game theoretic modelling approach
Afaf H. Rahim
Philipps-Universität Marburg, Germany
Ekko C. van Ierland and Hans-Peter Weikard
Wageningen University, The Netherlands
Abstract
Gum arabic is mainly produced from two Acacias that are found in the
gum belt of Sub-Saharan Africa. These are Acacia senegal that produces
high quality gum and Acacia seyal that produces low quality gum. In
recent years the gum market structure has changed and Sudan lost its
near monopoly position as Chad and Nigeria became important gum
suppliers. In order to understand the competition between Sudan, Chad
and Nigeria in the export of high and low quality gum arabic we develop
a von Stackelberg model with interdependent markets. Whereas Sudan (the
leader) has an absolute cost advantage in the export of high quality
gum, Chad and Nigeria (the followers) have a cost advantage in the
export of low quality gum. We determine the market equilibrium outcomes
and study the impact of development assistance scenarios to promote
either the high or low quality gum. Our results suggest that the leader
is better off promoting the quality for which it has cost advantage,
i.e. the high quality gum. This also leads to a lower reduction in the
competitors’ profit than promoting low quality gum. Similarly, when
followers promote the quality for which they have cost advantage, i.e.
the low quality gum, this results in a lower reduction in the leader's
profit than when they promote high quality gum. The best strategy of
the followers is, however, sensitive with respect to the elasticities
of demand.
Keywords: Sub-Sahara, gum arabic, oligopoly, interdependent markets, Stackelberg equilibrium
JEL: D43, L11, Q13, Q17
Vol. 49 (2010), No. 1: 1-24