The Potential Role of E-Commerce in Florida’s Cattle Market: Theory and Application

The economic theories of New Institutional Economics (NIE), auctions, and welfare economics are used to analyze the potential for E-Commerce as an institution within the agricultural sector. We discuss the theory of the firm within the NIE paradigm and focus on the potential for E-Commerce to reduce transaction costs, search costs, and the costs associated with buying and selling livestock under various auction formats. We develop a theoretical model that captures the effect of Internet feeder-cattle auctions on Florida's cattle market at three different levels in the marketing channel. We discuss the institutional arrangements and marketing mechanisms associated with the marketing of stocker and feeder cattle in Florida. We present the results of a survey distributed to cattle producers in North Florida regarding herd size, direct transaction costs of marketing cattle, and the implications of internet technology. Finally, we perform an empirical welfare analysis in order to estimate the impact of reduced transaction costs associated with Internet and video livestock auctions on cow-calf operators and backgrounders in Florida.