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Price Discrimination in the Context of Vertical Differentiation: An Application to Canadian Wheat Exports

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  • Lavoie, Nathalie
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    Abstract

    This study examines the ability of the Canadian Wheat Board (CWB) to price discriminate in bread wheat exports. This study models wheat as a vertically differentiated intermediate good and modifies the model of vertical differentiation by Mussa and Rosen to the realities of wheat import demand. The conceptual model isolates the bases of price discrimination and demonstrates that the CWB’s ability to exploit cost differences in pricing depends on the extent of the differentiation between Canadian and U.S. wheat. This model is implemented using monthly confidential price data provided by the CWB for exports to Japan, the United Kingdom, and two markets aggregating remaining exports through Canada’s west and east coasts, for 1982 1994. The data indicate that the CWB charges different prices to different countries for wheat of the same grade and protein content. Results from the model indicate that the price difference between any two markets is not completely explained by elements of perfect competition. However, the evidence is mixed regarding the ability of the CWB to utilize all the instruments available to price discriminate. Thus, the CWB’s pricing strategy may be more complex and dynamic than the prescription for static producer surplus maximization derived in this study.

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    Bibliographic Info

    Paper provided by University of Connecticut, Food Marketing Policy Center in its series Research Reports with number 25210.

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    Date of creation: 2002
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    Handle: RePEc:ags:uconnr:25210

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    Related research

    Keywords: Crop Production/Industries; Demand and Price Analysis; Industrial Organization; International Relations/Trade;

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    1. Nathalie Lavoie, 2005. "Price Discrimination in the Context of Vertical Differentiation: An Application to Canadian Wheat Exports," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 835-854.
    2. Carlos Arnade & Daniel Pick, 1999. "Alternative approach to measuring oligopoly power: a wheat market example," Applied Economics Letters, Taylor & Francis Journals, vol. 6(3), pages 195-197.
    3. Stiegert, Kyle W. & Blanc, Jean-Pierre, 1997. "Japanese Demand For Wheat Protein Quantity And Quality," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 22(01), July.
    4. Colin A. Carter & R.M.A. Loyns & Derek Berwald, 1998. "Domestic Costs of Statutory Marketing Authorities: The Case of the Canadian Wheat Board," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 313-324.
    5. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    6. Piggott, Roley R., 1992. "Some Old Truths Revisited," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 36(02), August.
    7. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
    8. Piggott, Roley R., 1992. "Some Old Truths Revisited," 1992 Conference (36th), February 10-13, 1992, Canberra, Australia 147251, Australian Agricultural and Resource Economics Society.
    9. Katz, Michael L, 1984. "Price Discrimination and Monopolistic Competition," Econometrica, Econometric Society, vol. 52(6), pages 1453-71, November.
    10. Haley, Stephen L., 1992. "The US export enhancement program : Prospects under the food, agriculture, conservation, and Trade Act of 1990," Food Policy, Elsevier, vol. 17(2), pages 129-140, April.
    11. Dahl, Bruce L. & Wilson, William W., 1997. "Factors Affecting The Supply Of Quality Spring Wheats: Comparisons Between The United States And Canada," Agricultural Economics Reports 23218, North Dakota State University, Department of Agribusiness and Applied Economics.
    12. Miner, William M., 2001. "An Overview of the Issues and Positions of the Major Countries in the WTO Negotiations," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 2(1).
    13. Marie Thursby, 1988. "Strategic Models, Market Structure, and State Trading: An Application to Agriculture," NBER Chapters, in: Trade Policy Issues and Empirical Analysis, pages 79-108 National Bureau of Economic Research, Inc.
    14. Harvey Brooks & Troy G. Schmitz, 1999. "Price discrimination in the international grain trade: The case of Canadian Wheat Board feed barley exports," Agribusiness, John Wiley & Sons, Ltd., vol. 15(3), pages 313-322.
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