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Integrated markup rules for optimal pricing decisions in expanding markets for organic produce

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  • Luanne Lohr
  • Timothy Park

Abstract

In expanding markets, firms face uncertainty about demand response to changing conditions and the appropriate pricing response. Inclusion of retail demand factors in explaining markup decisions by wholesalers is crucial to accurate evaluation of the effects of price and market changes on profitability. We apply an integrated demand and markup model to markets for organic broccoli and carrots where wholesalers set markups facing retail demand. The estimated integrated system includes crossequation restrictions on organic and conventional prices received from retail, publicity about food safety scares and availability of a competing certification programme. The results show that organic wholesalers behave strategically in response to observable demand factors as they expand into fresh produce markets. Wholesalers arbitrage markups across items to increase market share, combining crop-specific and overall market information to decide on appropriate responses. Wholesalers also attempt to moderate markups in response to demand fluctuations in order to smooth market development.

Suggested Citation

  • Luanne Lohr & Timothy Park, 1999. "Integrated markup rules for optimal pricing decisions in expanding markets for organic produce," Applied Economics, Taylor & Francis Journals, vol. 31(7), pages 885-892.
  • Handle: RePEc:taf:applec:v:31:y:1999:i:7:p:885-892
    DOI: 10.1080/000368499323841
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    Cited by:

    1. Ahmadi-Javid, Amir & Hoseinpour, Pooya, 2015. "A location-inventory-pricing model in a supply chain distribution network with price-sensitive demands and inventory-capacity constraints," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 82(C), pages 238-255.
    2. Maurizio Canavari & Roberta Centonze & Gianluca Nigro, 2007. "Organic food marketing and distribution in the European Union," DEIAgra Working Papers 7002, Alma Mater Studiorum University of Bologna, Department of Agricultural Economics and Engineering, revised Jul 2007.

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