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A Dynamic Analysis Of Us Export Wheat Pricing And Market Shares

Listed author(s):
  • Ahmadi-Esfahani, Fredoun Z.
  • Carter, Colin A.

The economics of a higher loan rate to support US wheat prices is analysed. Utilising optimal control theory, a dynamic wheat trade model is developed. The basic premise underlying the model is that the United States finds itself having transient monopoly power in the wheat market. An expression for the optimal pricing policy which maximises the present value of expected profits over the indefinite future is derived. Results from both the theoretical and empirical models demonstrate that the US wheat pricing strategy depends on its costs relative to competitors' costs, the discount rate and the competitors' response function. The main policy implication of the analysis is for the dominant wheat exporting country constantly to seek to lower costs relative to competitors and to maintain a price exceeding unit cost without encouraging competitors' expansion.

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Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural Economics.

Volume (Year): 31 (1987)
Issue (Month): 03 (December)

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Handle: RePEc:ags:ajaeau:22269
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  1. Dunmore, John C., 1985. "International Trade as a Source of Risk and Uncertainty," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 3(1), February.
  2. Mitchell, Donald O & Duncan, Ronald C, 1987. "Market Behavior of Grains Exporters," World Bank Research Observer, World Bank Group, vol. 2(1), pages 3-21, January.
  3. Johnson, S. R. & Womack, Abner W. & Meyers, William H. & Young II, Robert E. & Brandt, Jon, 1985. "Options for the 1985 Farm Bill: An Analysis and Evaluation," Staff Reports 244138, Food and Agricultural Policy Research Institute (FAPRI).
  4. Gaskins, Darius Jr., 1971. "Dynamic limit pricing: Optimal pricing under threat of entry," Journal of Economic Theory, Elsevier, vol. 3(3), pages 306-322, September.
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