The Impact of Agricultural Market Information System in Bosnia & Herzegovina on MarketIntegration: Assymetric Information and Market Performance
When identical commodities are being exchanged between two or more markets, the prices of those commodities should be equal according to the law of one price, with the only difference in the transport cost between those markets. Therefore, in the perfectly integrated economy, local demand has no impact onto the formation of the market price, and once changes in local demand occur, the prices are being equalized in the national market through efficient allocation of resources (Pareto efficiency). Quantity supplied is being adjusted by shifting goods towards the markets with higher demand. This represents “the first fundamental theorem of welfare economics”, which is confirmation of Adam Smith's "invisible hand". The concept is further expanded first by Stigler, explaining the relevance of market information for the purpose of increasing market efficiency. When there is lacking significant market information, agents in the market cannot engage in optimal arbitrage and the price dispersion is present, so therefore markets are not efficient (Stigler, 1961). We put this theory into perspective of the particular setting in B&H. We analysethe extent of agro-food market integration in B&H by studying price differentials between different market locations to answer whether the introduction of ICT service improved market efficiency, thereby potentially revealing that actors in the market did not actually have access to relevant price information.