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The Transmission of Price Trends from Consumers to Producers and Tests of Market Power

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  • Lkassbi, Driss
  • West, Gale E.
  • Clark, J. Stephen

Abstract

This study examines the competitiveness of four Canadian agricultural industries (eggs, milk, chicken and turkey) using a general equilibrium farm to retail pricing model developed by Wohlgenant (1989). The model generates retail and farm pricing equations that are estimated using maximum likelihood developed by Johansen (1992). The results indicate that in all cases, long-run constant returns is rejected, indicating market power within the Canadian retail to farm marketing sector. The model also finds more cointegrating vectors than predicted by theory, also inconsistent with competitive markets. Results are based on commercial disappearance as a proxy for consumer demand and therefore confounding between uncompetitive markets and quality differences may be indicated. Less ambiguous results would be obtained if consumer expenditures rather than commercial disappearance data were available. Still, results are rather emphatic in rejection of competitive markets in food markets in Canada. More competitive markets are indicated in the United States using similar methods.

Suggested Citation

  • Lkassbi, Driss & West, Gale E. & Clark, J. Stephen, 2008. "The Transmission of Price Trends from Consumers to Producers and Tests of Market Power," Consumer and Market Demand Network Papers 45497, University of Alberta, Department of Resource Economics and Environmental Sociology.
  • Handle: RePEc:ags:ualbnp:45497
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    File URL: http://purl.umn.edu/45497
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    Keywords

    Market power; food processing; cointegration; Agribusiness; Agricultural and Food Policy; Consumer/Household Economics; Demand and Price Analysis; Food Consumption/Nutrition/Food Safety; D41; L66; Q13;

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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