SETTING THE PRICES RIGHT? AN EMPIRICAL ANALYSIS OF E-AUCTION IN CARDAMOM

Abstract

Towards addressing the equity and efficiency deficit associated with the conventional auction system, the Spices Board introduced the e-auction for cardamom in 2007. How effective has been this intervention? This is the central issue being addressed by this paper. To begin with the study finds that the e-auction has been able to address to a great extent the efficiency and equity deficit that prevailed, as there has been a significant decline in the extent of concentration at the level of bidders and reduction in the price variation across different lots sold through e-auctions. Higher concentration at the level of auctioneers in 2018 is found to have a dampening effect on price. This tends to suggest the need for removing entry barriers, especially for the small farmers’ associations to act as auctioneers and increasing the number of auctions per day. Secondly, though e-auctions ensured anonymity of buyers and sellers, human interventions appear to remain because the lots are not always auctioned at random, instead, for various reasons, as decided by the auctioneer. We are inclined to infer that the observed pattern wherein the last 50 lots auctioned in general recording significantly lower price as compared to the first 50 lots cannot be deinked with the existing human intervention. Hence the study makes the case for getting rid of human interventions in auctions by random auctioning of lots so that the observed variations in price could be done away with. Thirdly, there is an increasing incidence of re-pooling wherein the lots once sold are getting re-auctioned in subsequent auctions at the instance of dealers and auctioneers, which is found to have an adverse impact on prices. Hence the study underlines the need for doing away with re-pooling such that auctioneers and traders do not make use of e-auction as a platform for arbitraging and thus defeating the very purpose of Cardamom (Marketing and Regulation) Act. Finally, Going by the available empirical evidence, increase in the bid rate seems to have had no significant effect on price realization.