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Abstract
Hotelling’s classic model of spatial competition is adapted to estimate the impacts on grain price
of the closure of one of three grain buyers on the Mississippi River in the vicinity of Scott County,
Iowa. The customers of the buyer who is closing (River Gulf Grain Company) in Davenport, Iowa,
are assumed to deliver their grain to a buyer in either Buffalo, Iowa, to the south or to a buyer
in Clinton, Iowa, to the north. Calibration of Hotelling’s framework to this situation leads to an
estimated decline in grain bids of 1.5¢ per bushel for the buyer located in Clinton and by 2.5¢ per
bushel for the buyer located in Buffalo. These estimates are based on an incremental transportation
cost of 0.15¢ per mile between the seller’s farm and the buyer. This price decline would reduce gross
receipts of the farmers who currently deliver to Davenport by approximately $264,000 per year. The
effect of lower price bids on gross receipts of all area farmers would be approximately $750,000
per year. Transportation costs would increase by an estimated $75,000 for those farmers who would
have to haul their grain farther because of the closure.