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Estimating bargaining strengths of Canadian chicken producers and processors using a bilateral monopoly framework

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  • Jean-Philippe Gervais

    (Agri-industries and International Trade, CRÉA and Department of Agricultural Economics, Laval University, Québec, QC G1K 7P4 Canada)

  • Stephen Devadoss

    (Department of Agricultural Economics, University of Idaho, P.O. Box 442334, Moscow, ID 83844-2334)

Abstract

This study develops a dynamic price adjustment mechanism for the Canadian chicken industry using a bilateral monopoly framework. The model compares the processors and producers' bargaining strengths in order to determine the equilibrium price of live chickens in Ontario. The theoretical results show how the equilibrium price of live chickens and each party's profit depend on the coefficient of bargaining power. The stochastic properties of price and cost data call for cointegration techniques to infer the bargaining weights. The hypothesis of equal bargaining strengths between processors and producers in Ontario over the 1997-2002 period is strongly rejected by the data. It is shown that chicken processors had greater bargaining power than chicken producers because live chicken prices were highly correlated to chicken producers' average costs. [Econlit citations: C22, L13 and Q13]. © 2006 Wiley Periodicals, Inc. Agribusiness 22: 159-173, 2006.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 22 (2006)
Issue (Month): 2 ()
Pages: 159-173

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Handle: RePEc:wly:agribz:v:22:y:2006:i:2:p:159-173

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Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, April.
  2. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
  3. Saikkonen, Pentti, 1991. "Asymptotically Efficient Estimation of Cointegration Regressions," Econometric Theory, Cambridge University Press, vol. 7(01), pages 1-21, March.
  4. Sexton, Richard J. & Lavoie, Nathalie, 2001. "Food processing and distribution: An industrial organization approach," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 15, pages 863-932 Elsevier.
  5. Nielsen, Morten Orregaard, 2005. "Noncontemporaneous cointegration and the importance of timing," Economics Letters, Elsevier, vol. 86(1), pages 113-119, January.
  6. Devadoss Stephen & Cooper Kevin, 2000. "Simultaneous Price And Quantity Determination In A Joint Profit Maximizing Bilateral Monopoly Under Dynamic Optimization," International Economic Journal, Taylor & Francis Journals, vol. 14(1), pages 71-84.
  7. Peter Boswijk, H., 1994. "Testing for an unstable root in conditional and structural error correction models," Journal of Econometrics, Elsevier, vol. 63(1), pages 37-60, July.
  8. Kellie Curry Raper & Corinna Noelke, 2004. "Determining market power exertion between buyers and sellers: are nonparametrics a viable alternative?," Applied Economics, Taylor & Francis Journals, vol. 36(20), pages 2265-2274.
  9. Murray Fulton & Yongmei Tang, 1999. "Testing the Competitiveness of a Multistage Food Marketing System: The Canadian Chicken Industry," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 47(3), pages 225-250, November.
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Cited by:
  1. repec:ags:uconnr:149205 is not listed on IDEAS
  2. Abdessalem Abbassi & Lota D. Tamini & Jean‐Philippe Gervais, 2012. "Do Inventories Have an Impact on Price Transmission? Evidence From the Canadian Chicken Industry," Agribusiness, John Wiley & Sons, Ltd., vol. 28(2), pages 173-186, 03.
  3. Tian, Li, 2006. "The Strategic Effect of Private Label in a Vertical Bargaining Model," Research Reports 170112, University of Connecticut, Food Marketing Policy Center.
  4. Pouliot, Sebastien & Larue, Bruno, 2011. "Institutionalized Metzler Effects: Tariff-Rate Quota Liberalization in a Supply-Managed Industry," Working Papers 102651, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
  5. Bruno Larue & Mohamed Jeddy & Sébastien Pouliot, 2013. "On the Number of Bidders and Auction Performance: when More Means Less," Cahiers de recherche CREATE 2013-4, CREATE.

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