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Price Transmission, Market Power and Returns to Scale

Author

Listed:
  • Wang, Xiuqing
  • Weldegebriel, Habtu T.
  • Rayner, Anthony J.

Abstract

In this paper, we aim to model the vertical relation between retailers and suppliers in the food industry whereby retailers exercise seller power in their relation with consumers and buyer power in their relation with producers. We then evaluate the degree of price transmission, relative to the perfectly competitive benchmark, from the farm to the retail sector assuming a supply shock. With the view to evaluating the impact of market power's interaction with industry technology on the degree of price transmission, we assume industry technology to be characterised by variable input proportions and non-constant returns to scale. Our model predicts that, relative to that which obtains when markets are perfectly competitive and industry technology is characterised by constant returns to scale, the degree of price transmission when market power and industry technology interact cannot be unambiguously determined.

Suggested Citation

  • Wang, Xiuqing & Weldegebriel, Habtu T. & Rayner, Anthony J., 2006. "Price Transmission, Market Power and Returns to Scale," Working Papers 46004, Scottish Agricultural College, Land Economy Research Group.
  • Handle: RePEc:ags:saclwp:46004
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    References listed on IDEAS

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    1. Kinnucan, Henry W., 2003. "Optimal generic advertising in an imperfectly competitive food industry with variable proportions," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 29(2), October.
    2. Paul W. Dobson & Michael Waterson & Stephen W. Davies, 2003. "The Patterns and Implications of Increasing Concentration in European Food Retailing," Journal of Agricultural Economics, Wiley Blackwell, vol. 54(1), pages 111-125.
    3. repec:ccp:journl:v:54:y:2003:i:1:p:111-125 is not listed on IDEAS
    4. Sanjib Bhuyan & Rigoberto A. Lopez, 1997. "Oligopoly Power in the Food and Tobacco Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 1035-1043.
    5. A. M. Azzam & E. Pagoulatos, 1990. "Testing Oligopolistic And Oligopsonistic Behaviour: An Application To The Us Meat-Packing Industry," Journal of Agricultural Economics, Wiley Blackwell, vol. 41(3), pages 362-370.
    6. Paul Dobson & Roger Clarke & Stephen Davies & Michael Waterson, 2001. "Buyer Power and its Impact on Competition in the Food Retail Distribution Sector of the European Union," Journal of Industry, Competition and Trade, Springer, vol. 1(3), pages 247-281, September.
    7. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-430, March.
    8. Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, vol. 43(171), pages 267-274, August.
    9. John Vickers, 2005. "Abuse of Market Power," Economic Journal, Royal Economic Society, vol. 115(504), pages 244-261, June.
    10. repec:ccp:journl:v:1:y:2001:i:3:p:247-281 is not listed on IDEAS
    11. Paul Dobson & Michael Waterson, 1999. "Retailer power: recent developments and policy implications," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 133-164, April.
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    Cited by:

    1. Johan Swinnen & Anneleen Vandeplas, 2014. "Price Transmission and Market Power in Modern Agricultural Value Chains," LICOS Discussion Papers 34714, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    2. Lodovico Muratori, 2016. "Price Gap along the Ugandan Coffee Value Chain," Working Papers 1/16, Sapienza University of Rome, DISS.
    3. repec:eco:journ1:2017-03-79 is not listed on IDEAS

    More about this item

    Keywords

    price transmission; returns to scale; market power; Demand and Price Analysis; Marketing; L11; Q13;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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