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Trade implications of price discrimination in a domestic market

Author

Listed:
  • Nobunori Kuga

    (Statistics Commission Office, Cabinet Office, Government of Japan, 3-1-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8970, Japan)

  • Nobuhiro Suzuki

    (Department of Global Agricultural Sciences, The University of Tokyo, 1-1-1 Yayoi, Bunkyo-ku, Tokyo 113-8657, Japan)

  • Harry M. Kaiser

    (Department of Applied Economics and Management, Cornell University, 349 Warren Hall, Ithaca, NY 14853-7801)

Abstract

This study examines how domestic price discrimination between fluid and manufacturing milk influences dairy trade. Two types of dairy models are used for the study. The first one is a stylized mathematical model which is used to explore the relative trade effects of domestic price discrimination accompanied with revenue pooling mechanism versus border measures in dairy product markets. The second one is a partial equilibrium, multiple-region model of dairy policy and trade, which is used to see the empirical implication of domestic price discrimination for six major dairy producers. The analytical results identify the trading status as the key to determine the relative trade effects. While domestic price discrimination is always less trade distorting than border measures in a net-importer case, the relative trade distortiveness depends on the export volume in a net exporter case. The theoretical possibility that domestic price discrimination is more trade distorting than border measures is found when the ratio of dairy export to domestic manufacturing milk consumption is very high. The results also indicate that while the both support measures increase dairy export, domestic price discrimination may place greater economic burden on fluid milk consumers and less economic burden on tax payers than border measures. In addition, the results imply that domestic price discrimination schemes can be effective trade protective measures for Canada, Japan and the United States, where the schemes are currently being implemented. © 2010 Wiley Periodicals, Inc.

Suggested Citation

  • Nobunori Kuga & Nobuhiro Suzuki & Harry M. Kaiser, 2010. "Trade implications of price discrimination in a domestic market," Agribusiness, John Wiley & Sons, Ltd., vol. 26(1), pages 64-82.
  • Handle: RePEc:wly:agribz:v:26:y:2010:i:1:p:64-82 DOI: 10.1002/agr.20216
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    References listed on IDEAS

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    1. Tsunemasa Kawaguchi & Nobuhiro Suzuki & Harry M. Kaiser, 2001. "Evaluating class I differentials in the new federal milk marketing order system," Agribusiness, John Wiley & Sons, Ltd., vol. 17(4), pages 527-538.
    2. Bouamra-Mechemache, Z. & Chavas, J.P. & Cox, T. & Réquillart, V., 2001. "Price discrimination and EU dairy policy : an economic evaluation of policy options," Economics Working Paper Archive (Toulouse) 23, French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse).
    3. Daniel A. Sumner, 1999. "Domestic Price Regulations and Trade Policy: Milk Marketing Orders in the United States," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 47(5), pages 5-16, December.
    4. Thomas L. Cox & Jean-Paul Chavas, 2001. "An Interregional Analysis of Price Discrimination and Domestic Policy Reform in the U.S. Dairy Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 89-106.
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