As mentioned above, the farmers we surveyed and traders we interacted with asserted that they
did not enter into ex ante contracts, either explicit or implicit. Instead they described a process
of ex post bargaining, where on any given day, village traders observe the mandi price and then
make a price oer to farmers. Farmers respond to the oer by choosing whether and how much
to sell to the trader. This process is repeated on successive days of the year. On any given day,
the farmer has a stock of potatoes. If he refuses the trader's price oer, he can either sell nothing
that day, or incur the cost of transporting some potatoes to a nearby market (known locally as
a haat) outside the village, where he encounters other traders. These traders make a price oer
to buy his potatoes and resell them in the wholesale market. If the farmer refuses this oer as
well, he must either transport the potatoes back to the village at a cost, or else discard them.
The trader in the market is aware of this hold-up" situation and so takes advantage of it by
oering a low price. As a result the option of selling to a trader in the haat is not very attractive.
If village traders collude with one another, it enables them to force the farmer down to a low
price.