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Farmgate versus retail prices and supermarkets’ pricing decisions: an integrated approach

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  • Russo, Carlo
  • Goodhue, Rachael

Abstract

Food and agricultural commodity prices exhibit several empirical regularities, including asymmetric price transmission, higher farmgate price volatility, and relatively low correlation between farmgate and retail prices. Supermarket pricing behaviors include promotions, loss-leaders, and unadvertised sales. Existing explanations tend to focus on either the behavior of farmgate and retail prices or on supermarkets’ pricing decisions. We develop a model that integrates them. It has three core assumptions: consumers are basket shoppers, each consumer has a preferred store, and consumers cannot observe the full set of prices freely before entering the store. The phenomena listed above are all outcomes of the model.

Suggested Citation

  • Russo, Carlo & Goodhue, Rachael, 2014. "Farmgate versus retail prices and supermarkets’ pricing decisions: an integrated approach," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182779, European Association of Agricultural Economists.
    • Handle: RePEc:ags:eaae14:182779
    DOI: 10.22004/ag.econ.182779
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    1. Miranda, Mario J & Helmberger, Peter G, 1988. "The Effects of Commodity Price Stabilization Programs," American Economic Review, American Economic Association, vol. 78(1), pages 46-58, March.
    2. S McCorriston & CW Morgan & AJ Rayner, 2001. "Price transmission: the interaction between market power and returns to scale," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 28(2), pages 143-159, June.
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