The Impact of Agricultural Market Information System in B&H on Market Integration: Asymmetric Information and Market Performance

In a perfectly integrated market local demand has no impact on the formation of market price, since changes in local demand cause price equalization in the market through efficient allocation of resources (Pareto efficiency). Information is crucial to market performance and integration as market agents can’t explore arbitrage opportunities in its absence. This paper tests the impact of introduction of agricultural market information system (via SMS service which provides information on prices of agricultural items in different markets) on observed degree of market integration in agro-food market in B&H, pre and post the service. Degree of market integration is measured as the extent that local demand has on formation of prices in the market pre and post introduction of the Information and Communication Technology (ICT) service. The methodology assumed tests the Law of One Price, while taking into account transportation costs and concludes that introduction of the ICT service in agro-food market in B&H has increased the level of market integration as it is shown that the impact of the local demand onto formation of the local market price has decreased after the introduction of the service. The results suggest that ICT may have a significant role in tackling information asymmetry and consequently promote market integration. This is a pilot assessment that covered only 16 months of daily price, so for the purpose of drawing conclusions with additional precision, it must be noted that there exists a need to broaden the study further to cover larger period of time.