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Market Power and Farm-Retail Price Transmission: The Case of U.S. Fluid Milk Markets

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  • Yu, Charng-Jiun
  • Gould, Brian W.

Abstract

In this paper we seek to understand the impact of market competitiveness on the degree of asym-metric price transmission and associated welfare implications. We estimate a kinked Almost Ideal Demand System for fluid milk products in 18 U.S. metropolitan areas. By conducting an asymmet-ric price transmission test, we find that cities with less competitive food retailing tend to exhibit asymmetric price transmission. The degree of price asymmetry and associated welfare loss are decreasing in the market competitiveness. Our welfare analysis suggests that the welfare loss due to asymmetric price transmission is large in terms of the percentage of milk expenditures. The potential is for substantially higher future welfare loss given the ongoing consolidation in food retailing industry.

Suggested Citation

  • Yu, Charng-Jiun & Gould, Brian W., 2018. "Market Power and Farm-Retail Price Transmission: The Case of U.S. Fluid Milk Markets," 2018 Conference, April 16-17, 2018, Minneapolis, Minnesota 285887, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:n13418:285887
    DOI: 10.22004/ag.econ.285887
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