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Market power and farm‐retail price transmission: The case of US fluid milk markets

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  • Charng‐Jiun Yu
  • Brian W. Gould

Abstract

In this paper, we seek to understand the impact of market competitiveness on the degree of asymmetric price transmission and associated welfare implications. We estimate a kinked Almost Ideal Demand System for fluid milk products in 18 US metropolitan areas. By conducting an asymmetric price transmission test, we find that cities with less competitive food retailing tend to exhibit asymmetric price transmission. The degree of price asymmetry and associated welfare loss are decreasing in market competitiveness. Our welfare analysis suggests that the welfare loss due to asymmetric price transmission is large in terms of the percentage of milk expenditures. The potential is for substantially higher future welfare loss given the ongoing consolidation in the food retailing industry. [EconLit citations: L11, Q11]

Suggested Citation

  • Charng‐Jiun Yu & Brian W. Gould, 2019. "Market power and farm‐retail price transmission: The case of US fluid milk markets," Agribusiness, John Wiley & Sons, Ltd., vol. 35(4), pages 537-555, October.
    • Handle: RePEc:wly:agribz:v:35:y:2019:i:4:p:537-555
    DOI: 10.1002/agr.21606
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    References listed on IDEAS

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    1. Richard Damania & Bill Z. Yang, 1998. "Price Rigidity and Asymmetric Price Adjustment in a Repeated Oligopoly," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 154(4), pages 659-659, December.
    2. Davis, Christopher G. & Dong, Diansheng & Blayney, Donald P. & Yen, Steven T. & Stillman, Richard, 2012. "U.S. Fluid Milk Demand: A Disaggregated Approach," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 15(1), pages 1-26, February.
    3. Gould, Brian W. & Cox, Thomas L. & Perali, Carlo Federico, 1990. "The Demand For Fluid Milk Products In The U.S.: A Demand Systems Approach," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 15(1), pages 1-12, July.
    4. Enders, Walter & Granger, Clive W J, 1998. "Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(3), pages 304-311, July.
    5. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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    Cited by:

    1. Rebecca Cleary & Jean-Paul Chavas, 2022. "Strategic supermarket pricing of private labels and manufacturer brands," Empirical Economics, Springer, vol. 62(6), pages 2921-2950, June.
    2. Evert Los & Cornelis Gardebroek & Ruud Huirne, 2021. "Explaining output price heterogeneity in Dutch horticulture," Agribusiness, John Wiley & Sons, Ltd., vol. 37(4), pages 891-914, October.
    3. Patrick L. Hatzenbuehler & Xiaoxue Du & Kathleen Painter, 2021. "Price transmission with sparse market information: The case of United States chickpeas," Agribusiness, John Wiley & Sons, Ltd., vol. 37(3), pages 665-682, July.

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