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Price Discrimination in the Context of Vertical Differentiation: An Application to Canadian Wheat Exports

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  • Lavoie, Nathalie

Abstract

This study examines the ability of the Canadian Wheat Board (CWB) to price discriminate in bread wheat exports. This study models wheat as a vertically differentiated intermediate good and modifies the model of vertical differentiation by Mussa and Rosen to the realities of wheat import demand. The conceptual model isolates the bases of price discrimination and demonstrates that the CWBs ability to exploit cost differences in pricing depends on the extent of the differentiation between Canadian and U.S. wheat. This model is implemented using monthly confidential price data provided by the CWB for exports to Japan, the United Kingdom, and two markets aggregating remaining exports through Canadas west and east coasts, for 1982 1994. The data indicate that the CWB charges different prices to different countries for wheat of the same grade and protein content. Results from the model indicate that the price difference between any two markets is not completely explained by elements of perfect competition. However, the evidence is mixed regarding the ability of the CWB to utilize all the instruments available to price discriminate. Thus, the CWBs pricing strategy may be more complex and dynamic than the prescription for static producer surplus maximization derived in this study.

Suggested Citation

  • Lavoie, Nathalie, 2002. "Price Discrimination in the Context of Vertical Differentiation: An Application to Canadian Wheat Exports," Research Reports 25210, University of Connecticut, Food Marketing Policy Center.
  • Handle: RePEc:ags:uconnr:25210
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    File URL: http://purl.umn.edu/25210
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    References listed on IDEAS

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    12. Dahl, Bruce L. & Wilson, William W., 1997. "Factors Affecting The Supply Of Quality Spring Wheats: Comparisons Between The United States And Canada," Agricultural Economics Reports 23218, North Dakota State University, Department of Agribusiness and Applied Economics.
    13. Nathalie Lavoie, 2005. "Price Discrimination in the Context of Vertical Differentiation: An Application to Canadian Wheat Exports," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 835-854.
    14. Katz, Michael L, 1984. "Price Discrimination and Monopolistic Competition," Econometrica, Econometric Society, vol. 52(6), pages 1453-1471, November.
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