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Asymmetric price transmission due to market power in the case of supply shocks

Author

Listed:
  • Frank Bunte

    (Agricultural Research Institute, Burgemeester Patijnlaan 19,, Post Box 29703, 2502 LS Den Haag, The Netherlands., E-mail: frank.bunte@lei.wag-ur.nl)

  • Jack Peerlings

    (Wageningen University, Department of Social Sciences,, Agricultural Economics and Rural Policy Group, Hollandseweg 1,, 6706 KN Wageningen, The Netherlands., E-mail: jack.peerlings@wur.nl)

Abstract

In this article the market power argument for explaining asymmetric price transmission due to market power in case of supply shocks is examined. Moreover, the potential welfare effects are examined. The analysis is performed using an extension of the Azzam and Schroeter (1995) model comprising both oligopsony and oligopoly instead of just oligopsony. The model is given empirical content using data on the Dutch cucumber chain and assuming Cournot competition among retailers who have market power on either the consumer|retail or growers|retail market or both. The results show that in case of a cucumber supply shock and market power, consumer prices change more than growers' prices. Moreover, total welfare effects of market power are small but potentially large income distribution effects exist. [EconLit citations: L130, Q130.] © 2003 Wiley Periodicals, Inc. Agribusiness 19: 19-28, 2003.

Suggested Citation

  • Frank Bunte & Jack Peerlings, 2003. "Asymmetric price transmission due to market power in the case of supply shocks," Agribusiness, John Wiley & Sons, Ltd., vol. 19(1), pages 19-28.
    • Handle: RePEc:wly:agribz:v:19:y:2003:i:1:p:19-28
    DOI: 10.1002/agr.10040
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    References listed on IDEAS

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    1. Azzeddine M. Azzam & John R. Schroeter, 1995. "The Tradeoff between Oligopsony Power and Cost Efficiency in Horizontal Consolidation: An Example from Beef Packing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(4), pages 825-836.
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    4. Zhigang Chen & Rebecca Lent, 1992. "Supply Analysis in an Oligopsony Model," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(4), pages 973-979.
    5. Michael LeBlanc, 1998. "The Weakening Relationships between Farm and Food Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(5), pages 1134-1138.
    6. Albert J. Reed & J. Stephen Clark, 1998. "The Transmission of Trends in Retail Food and Farm Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(5), pages 1139-1143.
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    3. Mai, Thang Chien & Shakur, Shamim & Cassells, Sue, 2016. "Price Asymmetry of Coffee Beans: Evidence from Vietnam," 2016 Conference, August 25-26, Nelson, New Zealand 260807, New Zealand Agricultural and Resource Economics Society.
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    6. Nakajima, Toru & Matsuda, H. & Rifin, Amzul, 2010. "The Structural Change in the Supply Chain of Oil Palm – A Case of North Sumatra Province, Indonesia," 116th Seminar, October 27-30, 2010, Parma, Italy 95206, European Association of Agricultural Economists.
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