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Retailer Motivation to Adjust Milk Prices: An Analysis Using Superelasticity of Demand

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  • Vardges Hovhannisyan
  • Marin Bozic

Abstract

ABSTRACT Superelasticity of demand offers a quantitative measure of demand curvature which is an important consideration in firm pricing decisions. We derive superelasticity analytic formulations for logit and random coefficient logit (RCL) demand models that can be used to shed light on firm incentives to alter price, firm cost pass‐through, and market power potential. We use the RCL superelasticities that are obtained via simulated generalized method of moments (GMM) to examine retail market power potential in regards to the marketing of national and store‐brand milk in the U.S. Our findings show that elasticity of demand rises in price for both brands, with elasticity for store brand milk lagging behind that for national brand in magnitude. Similarly, elasticities for national brands tend to decrease faster when prices are on the decline. Such a condition suggests that retailers can identify a pricing position, possibly in relation to national brand prices, at which there is a low incentive to increase or reduce store brand prices. [JEL Codes: D22, L13.]

Suggested Citation

  • Vardges Hovhannisyan & Marin Bozic, 2014. "Retailer Motivation to Adjust Milk Prices: An Analysis Using Superelasticity of Demand," Agribusiness, John Wiley & Sons, Ltd., vol. 30(2), pages 195-206, March.
    • Handle: RePEc:wly:agribz:v:30:y:2014:i:2:p:195-206
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    File URL: http://hdl.handle.net/10.1002/agr.21349
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    References listed on IDEAS

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    Cited by:

    1. Mohammed, Rezgar & Murova, Olga & Chidmi, Benaissa, 2017. "Demand for Yogurt in the Trend of Manufacturer Brand and Organic Information," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252728, Southern Agricultural Economics Association.
    2. Alejandro Acosta & Rico Ihle & Stephan Cramon-Taubadel, 2019. "Combining market structure and econometric methods for pricetransmission analysis," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 11(4), pages 941-951, August.

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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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