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Explaining pricing conduct in a product-differentiated oligopolistic market: An empirical application of a price conjectural variations model

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  • Junko Kinoshita

    (Policy Research Institute, Ministry of Agriculture, 2-2-1 Nishigahara,, Kita-ku, Tokyo 114-0024, Japan)

  • Nobuhiro Suzuki

    (Department of Agricultural and Resource Economics, Kyushu University, 6-10-1 Hakozaki, Higashi-ku, Fukuoka 812-8581, Japan)

  • Harry M. Kaiser

    (Department of Applied Economics and Management, Cornell University, Ithaca, New York 14850)

Abstract

A generalized Bertrand-type model is applied to gain insights on Japanese firms' pricing conduct regarding milk beverages made from fresh milk and reconstituted milk. The empirical results, based on weekly scanner data, indicate the original Bertrand model is inappropriate for our empirical analysis. The estimated model resulted in substantially more elastic own-price elasticities than previous estimates in Japan based on aggregate market data, supporting the Japanese retailers' contention that fluid milk is a more price-elastic product than what previous studies had found. Incorporating estimated price conjectures into the model resulted in considerable discrepancies between partial and perceived own-price elasticities. The result shows that a firm's price conjecture can be an important factor in determining the firm's perceived own-price elasticity. The estimated conjectural variations were tested to determine whether they represent consistent pricing behavior, and the results indicated that consistent pricing behavior could not be statistically supported. [Econ-Lit citations: Q110, Q130] © 2002 Wiley Periodicals, Inc.

Suggested Citation

  • Junko Kinoshita & Nobuhiro Suzuki & Harry M. Kaiser, 2002. "Explaining pricing conduct in a product-differentiated oligopolistic market: An empirical application of a price conjectural variations model," Agribusiness, John Wiley & Sons, Ltd., vol. 18(4), pages 427-436.
  • Handle: RePEc:wly:agribz:v:18:y:2002:i:4:p:427-436
    DOI: 10.1002/agr.10030
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    References listed on IDEAS

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    1. Iwata, Gyoichi, 1974. "Measurement of Conjectural Variations in Oligopoly," Econometrica, Econometric Society, vol. 42(5), pages 947-966, September.
    2. Schroeter, John R, 1988. "Estimating the Degree of Market Power in the Beef Packing Industry," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 158-162, February.
    3. Ronald Cotterill & William Putsis, 2000. "Market Share and Price Setting Behavior for Private Labels and National Brands," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(1), pages 17-39, August.
    4. Vickner, Steven S. & Davies, Stephen P., 1999. "Estimating Market Power And Pricing Conduct In A Product-Differentiated Oligopoly: The Case Of The Domestic Spaghetti Sauce Industry," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 31(01), April.
    5. Vickner, Steven S. & Davies, Stephen P., 1999. "Estimating Market Power and Pricing Conduct in a Product-Differentiated Oligopoly: The Case of the Domestic Spaghetti Sauce Industry," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 31(01), pages 1-13, April.
    6. repec:ags:joaaec:v:31:y:1999:i:1:p:1-13 is not listed on IDEAS
    7. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
    8. 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.
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    Cited by:

    1. Li, Xun & Lopez, Rigoberto A., 2015. "Energy Price Transmission and Retail Milk Prices," Working Papers 38, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    2. Elena Lopez & Rigoberto A. Lopez, 2009. "Demand for differentiated milk products: implications for price competition," Agribusiness, John Wiley & Sons, Ltd., vol. 25(4), pages 453-465.
    3. Goddard, Ellen W. & Shank, Benjamin & Panter, Chris & Nilsson, Tomas K.H. & Cash, Sean B., 2007. "Canadian Chicken Industry: Consumer Preferences, Industry Structure and Producer Benefits from Investment in Research and Advertising," Project Report Series 52088, University of Alberta, Department of Resource Economics and Environmental Sociology.

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