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Estimating strategic price response in a product-differentiated oligopoly: The case of a domestic canned fruit industry

  • Steven S. Vickner

    (Department of Agricultural Economics, University of Kentucky, Lexington, KY 40546-0276)

  • Stephen P. Davies

    (Department of Agricultural and Resource Economics, Colorado State University, Ft. Collins, CO 80523-1172)

In this article, we empirically estimate the strategic price response in a domestic canned fruit industry using national-level, weekly point-of-purchase scanner data. Augmented Dickey-Fuller tests are used to obtain univariate time series properties of Del Monte and Dole's canned pineapple prices. Johansen's likelihood ratio cointegration test is used to characterize the existence of an industry pricing equilibrium. Vector autoregression and vector error correction models are employed to examine the multivariate time series properties of the two firms' prices. Granger causality tests are used to address the price leadership hypothesis, while impulse response functions are constructed to chronicle the intertemporal price response to an innovation in a rival's price series. The battery of tests indicates that Del Monte follows Dole's pricing decisions in this narrowly defined product market. A thorough understanding of empirical price reactions has far-reaching strategic management implications, such as forecasting a rival's response and avoiding costly price wars. [L110, L200, L660] © 2000 John Wiley & Sons, Inc.

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Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 16 (2000)
Issue (Month): 2 ()
Pages: 125-140

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Handle: RePEc:wly:agribz:v:16:y:2000:i:2:p:125-140
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  1. Ariel Pakes & Paul McGuire, 1992. "Computing Markov Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," NBER Technical Working Papers 0119, National Bureau of Economic Research, Inc.
  2. Kinsey, Jean D. & Senauer, Benjamin, 1997. "Food Marketing in an Electronic Age: Implications for Agriculture," Choices, Agricultural and Applied Economics Association, vol. 12(2).
  3. David A. Bessler & Derya G. Akleman, 1998. "Farm Prices, Retail Prices, and Directed Graphs: Results for Pork and Beef," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(5), pages 1144-1149.
  4. Cotterill, Ronald W., 1994. "Scanner Data: New Opportunities For Demand And Competitive Strategy Analysis," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 23(2), October.
  5. Golan, Amos & Karp, Larry S. & Perloff, Jeffrey M., 1998. "Estimating Coke and Pepsi's Price and Advertising Strategies," Competition Policy Center, Working Paper Series qt18b1q4kr, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
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