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Price Transmission, Market Power and Returns to Scale

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  • Wang, Xiuqing
  • Weldegebriel, Habtu T.
  • Rayner, Anthony J.

Abstract

In this paper, we aim to model the vertical relation between retailers and suppliers in the food industry whereby retailers exercise seller power in their relation with consumers and buyer power in their relation with producers. We then evaluate the degree of price transmission, relative to the perfectly competitive benchmark, from the farm to the retail sector assuming a supply shock. With the view to evaluating the impact of market power's interaction with industry technology on the degree of price transmission, we assume industry technology to be characterised by variable input proportions and non-constant returns to scale. Our model predicts that, relative to that which obtains when markets are perfectly competitive and industry technology is characterised by constant returns to scale, the degree of price transmission when market power and industry technology interact cannot be unambiguously determined.

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Bibliographic Info

Paper provided by Scottish Agricultural College, Land Economy Research Group in its series Working Papers with number 46004.

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Date of creation: Dec 2006
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Handle: RePEc:ags:saclwp:46004

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Web page: http://www.sac.ac.uk/research/lee/
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Keywords: price transmission; returns to scale; market power; Demand and Price Analysis; Marketing; L11; Q13;

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  1. Kinnucan, Henry W., 2003. "Optimal generic advertising in an imperfectly competitive food industry with variable proportions," Agricultural Economics, Blackwell, vol. 29(2), pages 143-158, October.
  2. Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, vol. 43(171), pages 267-74, August.
  3. repec:ccp:journl:v:54:y:2003:i:1:p:111-125 is not listed on IDEAS
  4. Paul Dobson & Michael Waterson, 1999. "Retailer power: recent developments and policy implications," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 133-164, 04.
  5. Sanjib Bhuyan & Rigoberto A. Lopez, 1997. "Oligopoly Power in the Food and Tobacco Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 1035-1043.
  6. A. M. Azzam & E. Pagoulatos, 1990. "Testing Oligopolistic And Oligopsonistic Behaviour: An Application To The Us Meat-Packing Industry," Journal of Agricultural Economics, Wiley Blackwell, vol. 41(3), pages 362-370.
  7. Kinnucan, Henry W., 2003. "Optimal generic advertising in an imperfectly competitive food industry with variable proportions," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 29(2), October.
  8. Paul W. Dobson & Michael Waterson & Stephen W. Davies, 2003. "The Patterns and Implications of Increasing Concentration in European Food Retailing," Journal of Agricultural Economics, Wiley Blackwell, vol. 54(1), pages 111-125.
  9. repec:ccp:journl:v:1:y:2001:i:3:p:247-281 is not listed on IDEAS
  10. John Vickers, 2005. "Abuse of Market Power," Economic Journal, Royal Economic Society, vol. 115(504), pages F244-F261, 06.
  11. Paul Dobson & Roger Clarke & Stephen Davies & Michael Waterson, 2001. "Buyer Power and its Impact on Competition in the Food Retail Distribution Sector of the European Union," Journal of Industry, Competition and Trade, Springer, vol. 1(3), pages 247-281, September.
  12. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
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