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Estimating bargaining strengths of Canadian chicken producers and processors using a bilateral monopoly framework

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  • Jean-Philippe Gervais

    (Agri-industries and International Trade, CRÉA and Department of Agricultural Economics, Laval University, Québec, QC G1K 7P4 Canada)

  • Stephen Devadoss

    (Department of Agricultural Economics, University of Idaho, P.O. Box 442334, Moscow, ID 83844-2334)

Abstract

This study develops a dynamic price adjustment mechanism for the Canadian chicken industry using a bilateral monopoly framework. The model compares the processors and producers' bargaining strengths in order to determine the equilibrium price of live chickens in Ontario. The theoretical results show how the equilibrium price of live chickens and each party's profit depend on the coefficient of bargaining power. The stochastic properties of price and cost data call for cointegration techniques to infer the bargaining weights. The hypothesis of equal bargaining strengths between processors and producers in Ontario over the 1997-2002 period is strongly rejected by the data. It is shown that chicken processors had greater bargaining power than chicken producers because live chicken prices were highly correlated to chicken producers' average costs. [Econlit citations: C22, L13 and Q13]. © 2006 Wiley Periodicals, Inc. Agribusiness 22: 159-173, 2006.

Suggested Citation

  • Jean-Philippe Gervais & Stephen Devadoss, 2006. "Estimating bargaining strengths of Canadian chicken producers and processors using a bilateral monopoly framework," Agribusiness, John Wiley & Sons, Ltd., vol. 22(2), pages 159-173.
  • Handle: RePEc:wly:agribz:v:22:y:2006:i:2:p:159-173 DOI: 10.1002/agr.20078
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    References listed on IDEAS

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    1. Hansen, Bruce E., 1992. "Efficient estimation and testing of cointegrating vectors in the presence of deterministic trends," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 87-121.
    2. Kellie Curry Raper & Corinna Noelke, 2004. "Determining market power exertion between buyers and sellers: are nonparametrics a viable alternative?," Applied Economics, Taylor & Francis Journals, vol. 36(20), pages 2265-2274.
    3. Peter Boswijk, H., 1994. "Testing for an unstable root in conditional and structural error correction models," Journal of Econometrics, Elsevier, vol. 63(1), pages 37-60, July.
    4. Nielsen, Morten Orregaard, 2005. "Noncontemporaneous cointegration and the importance of timing," Economics Letters, Elsevier, vol. 86(1), pages 113-119, January.
    5. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, March.
    6. Devadoss Stephen & Cooper Kevin, 2000. "Simultaneous Price And Quantity Determination In A Joint Profit Maximizing Bilateral Monopoly Under Dynamic Optimization," International Economic Journal, Taylor & Francis Journals, vol. 14(1), pages 71-84.
    7. Sexton, Richard J. & Lavoie, Nathalie, 2001. "Food processing and distribution: An industrial organization approach," Handbook of Agricultural Economics,in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 15, pages 863-932 Elsevier.
    8. Saikkonen, Pentti, 1991. "Asymptotically Efficient Estimation of Cointegration Regressions," Econometric Theory, Cambridge University Press, vol. 7(01), pages 1-21, March.
    9. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-193, January.
    10. Murray Fulton & Yongmei Tang, 1999. "Testing the Competitiveness of a Multistage Food Marketing System: The Canadian Chicken Industry," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 47(3), pages 225-250, November.
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    Cited by:

    1. Bruno Larue & Mohamed Jeddy & Sébastien Pouliot, 2013. "On the Number of Bidders and Auction Performance: when More Means Less," Cahiers de recherche CREATE 2013-4, CREATE.
    2. Tian, Li, 2006. "The Strategic Effect of Private Label in a Vertical Bargaining Model," Research Reports 170112, University of Connecticut, Food Marketing Policy Center.
    3. Abdessalem Abbassi & Lota D. Tamini & Jean‐Philippe Gervais, 2012. "Do Inventories Have an Impact on Price Transmission? Evidence From the Canadian Chicken Industry," Agribusiness, John Wiley & Sons, Ltd., vol. 28(2), pages 173-186, March.
    4. David M. McEvoy & Sylvia Brandt & Sven Anders, 2009. "The Effects of ITQ Management on Fishermen’s Welfare When the Processing Sector Is Imperfectly Competitive," Land Economics, University of Wisconsin Press, vol. 85(3), pages 470-484.
    5. repec:ags:uconnr:149205 is not listed on IDEAS
    6. Pouliot, Sebastien & Larue, Bruno, 2011. "Institutionalized Metzler Effects: Tariff-Rate Quota Liberalization in a Supply-Managed Industry," Working Papers 102651, Structure and Performance of Agriculture and Agri-products Industry (SPAA).

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