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Price transmission: the interaction between market power and returns to scale

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  • S McCorriston
  • CW Morgan
  • AJ Rayner
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    Abstract

    Recent literature emphasises the role of market structure in determining the degree of price transmission along the marketing chain, the presumption being that if downstream markets are imperfectly competitive price transmission will be less than complete. However, empirical studies of market power often ignore the role of the underlying cost conditions. This paper shows that if an industry is characterised by non-constant marginal costs, there can be a significant impact on price transmission. Specifically, it is shown that the nature of the returns to scale that characterise the food industry cost function may either increase or decrease the degree of price transmission. Under certain conditions, price transmission may be greater in industries with increasing returns to scale than in markets characterised by perfect competition and constant returns to scale. Copyright 2001, Oxford University Press.

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    Bibliographic Info

    Article provided by Foundation for the European Review of Agricultural Economics in its journal European Review of Agricultural Economics.

    Volume (Year): 28 (2001)
    Issue (Month): 2 (June)
    Pages: 143-159

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    Handle: RePEc:oup:erevae:v:28:y:2001:i:2:p:143-159

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    Cited by:
    1. Octavio Fern?ndez-Amador & Josef Baumgartner & Jes?s Crespo-Cuaresma, 2010. "Milking The Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria," Working Papers 2010-21, Faculty of Economics and Statistics, University of Innsbruck.
    2. Rajcaniova, Miroslava & Pokrivcak, Jan, 2013. "Asymmetry in Price Transmission Mechanism: The Case of Slovak Potato Market," Review of Agricultural and Applied Economics (RAAE), Faculty of Economics and Management, Slovak Agricultural University in Nitra Provider-Homepage: http://www.roaae.org & Association of Agricultural Economists in Slovakia (APES), vol. 16(2).
    3. Gervais, Jean-Philippe, 2007. "Disentangling non-linearities in the long- and short-run price relationships: An application to the U.S. hog/Pork supply chain," MPRA Paper 7743, University Library of Munich, Germany, revised 15 Jan 2008.
    4. Teresa Serra & Barry Goodwin, 2003. "Price transmission and asymmetric adjustment in the Spanish dairy sector," Applied Economics, Taylor & Francis Journals, vol. 35(18), pages 1889-1899.
    5. Monia Ben-Kaabia & José M. Gil & Mehrez Ameur, 2005. "Vertical integration and non-linear price adjustments: The Spanish poultry sector," Agribusiness, John Wiley & Sons, Ltd., vol. 21(2), pages 253-271.
    6. Hailong Cai & Xiuqing Wang, 2010. "The substitution effect of cigarette excise tax for tobacco leaf tax in China," China Agricultural Economic Review, Emerald Group Publishing, vol. 2(4), pages 385-395, November.
    7. Abbassi, Abdessalem & Tamini, Lota D. & Gervais, Jean-Philippe, 2011. "Do inventories have an impact on price transmission? Evidence from the Canadian chicken industry," MPRA Paper 30868, University Library of Munich, Germany.
    8. Kim, Hyeyoung & Ward, Ronald W., 2013. "Price transmission across the U.S. food distribution system," Food Policy, Elsevier, vol. 41(C), pages 226-236.
    9. Soregaroli, Claudio & Sckokai, Paolo & Moro, Daniele, 2011. "Agricultural policy modelling under imperfect competition," Journal of Policy Modeling, Elsevier, vol. 33(2), pages 195-212, March.
    10. Habtu T. Weldegebriel & Xiuqing Wang & Anthony J. Rayner, 2012. "Price transmission market power and industry technology: a note," China Agricultural Economic Review, Emerald Group Publishing, vol. 4(3), pages 281-299, October.
    11. Goddard, Ellen W. & Shank, Benjamin & Panter, Chris & Nilsson, Tomas K.H. & Cash, Sean B., 2007. "Canadian Chicken Industry: Consumer Preferences, Industry Structure and Producer Benefits from Investment in Research and Advertising," Project Report Series 52088, University of Alberta, Department of Resource Economics and Environmental Sociology.
    12. Ben Kaabia, Monia & Gil, Jose Maria, 2005. "Asymetric Price Transmission in the Spanish Lamb Sector," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24631, European Association of Agricultural Economists.
    13. Zoltan Bakucs & Imre Ferto & Jan Falkowski, 2013. "What causes asymmetric price transmission in agro-food sector? Meta-analysis perspective," IEHAS Discussion Papers 1303, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    14. Werner Hediger, 2013. "From Multifunctionality and Sustainability of Agriculture to the Social Responsibility of the Agri-food System," Yearbook of Socioeconomics in Agriculture, Swiss Society for Agricultural Economics and Rural Sociology, vol. 6(1), pages 59-80.
    15. Zoltan Bakucs & Jan Falkowski & Imre Ferto, 2012. "Does Farm and Processing Industry Structure Matter for Price Transmission? Some Evidence From Transition Countries: A Comparison of Dairy Sectors in Hungary and Poland," IEHAS Discussion Papers 1212, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    16. Steve McCorriston, 2002. "Why should imperfect competition matter to agricultural economists?," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 29(3), pages 349-371, July.
    17. Steiner, Bodo E., 2007. "Formal beef alliances and alignment challenges: issues in contracting, pricing and quality," Project Report Series 7709, University of Alberta, Department of Resource Economics and Environmental Sociology.
    18. Ioanna Reziti & Yannis Panagopoulos, 2008. "Asymmetric price transmission in the greek agri-food sector: some tests," Agribusiness, John Wiley & Sons, Ltd., vol. 24(1), pages 16-30.

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