Transparency and Bidding Competition in International Wheat Trade

One of the trade policy issues identified by U.S. interests, including grower groups, traders and policy makers, is price transparency. This has been a point of contention between the United States and Canada as well as other exporting countries with state trading enterprises (STEs). The transparency problem generally refers to the inability to observe terms of trade (including price, quality, credit, etc.)offered by STEs, and the potential strategic advantage this provides in bidding competition. A game theory model of import tendering is developed in this paper to examine the effects of information asymmetry among rivals. Several stylized examples are used to illustrate aspects of competition and to analyze effects on bidding strategies. Results indicate that: Less uncertainty among rivals reduces equilibrium bids and prices. Tenders with less transparency have the effect of increasing prices to buyers and payoffs to sellers. Increases in the number of rivals have the effect of reducing bids and mitigating the informational advantages of STEs. In all cases, less transparent sellers have an advantage in bidding relative to more transparent sellers. That advantage in our stylized case is in the area of $1–2/t. However, the advantage is reduced when there are many transparent rivals and in the case where transparent players act as agents for an STE.