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Vertical price leadership: A cointegration analysis

  • W. Erno Kuiper

    (Marketing and Consumer Behavior Group, Department of Social Sciences, Wageningen University, Hollandseweg 1, NL-6706 KN Wageningen, The Netherlands)

  • Matthew T.G. Meulenberg

    (Marketing and Consumer Behavior Group, Department of Social Sciences, Wageningen University, Hollandseweg 1, NL-6706 KN Wageningen, The Netherlands)

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    Here we detail a method to test whether or not retailers allow suppliers to set the wholesale price not only on the basis of the costs faced by the suppliers but also on the basis of consumer demand. Using standard theory, long-run price relationships between the stages in the channel are derived. Next, these static price relationships are imposed on a dynamic model to be tested for cointegration and long-run noncausality, embedding the hypotheses on vertical price leadership. To derive the testable implications of these hypotheses, we show that the common stochastic trend and long-run equilibrium error must explicitly be assigned to variables in the channel model. The model is particularly relevant for industries characterized by a low degree of product differentiation. An empirical application to two Dutch marketing channels for food products gives comprehensible results. [EconLit citations: C32, L12, Q11] © 2002 Wiley Periodicals, Inc.

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    File URL: http://hdl.handle.net/10.1002/agr.10025
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    Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

    Volume (Year): 18 (2002)
    Issue (Month): 3 ()
    Pages: 317-331

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    Handle: RePEc:wly:agribz:v:18:y:2002:i:3:p:317-331
    Contact details of provider: Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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    1. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 27-35, January.
    2. William P. Putsis, 1999. "Empirical analysis of competitive interaction in food product categories," Agribusiness, John Wiley & Sons, Ltd., vol. 15(3), pages 295-311.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Butz, David A, 1997. "Vertical Price Controls with Uncertain Demand," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 433-59, October.
    5. Cotterill, Ronald W & Putsis, William P, Jr & Dhar, Ravi, 2000. "Assessing the Competitive Interaction between Private Labels and National Brands," The Journal of Business, University of Chicago Press, vol. 73(1), pages 109-37, January.
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    7. 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.
    8. Eunkyu Lee & Richard Staelin, 1997. "Vertical Strategic Interaction: Implications for Channel Pricing Strategy," Marketing Science, INFORMS, vol. 16(3), pages 185-207.
    9. repec:ner:tilbur:urn:nbn:nl:ui:12-332643 is not listed on IDEAS
    10. Naufel J. Vilcassim & Vrinda Kadiyali & Pradeep K. Chintagunta, 1999. "Investigating Dynamic Multifirm Market Interactions in Price and Advertising," Management Science, INFORMS, vol. 45(4), pages 499-518, April.
    11. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
    12. Paul R. Messinger & Chakravarthi Narasimhan, 1995. "Has Power Shifted in the Grocery Channel?," Marketing Science, INFORMS, vol. 14(2), pages 189-223.
    13. Gerstner, Eitan & Hess, James D, 1991. "A Theory of Channel Price Promotions," American Economic Review, American Economic Association, vol. 81(4), pages 872-86, September.
    14. Sohbet Karbuz & Adusei Jumah, 1995. "Cointegration and commodity arbitrage," Agribusiness, John Wiley & Sons, Ltd., vol. 11(3), pages 235-243.
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