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Market Integration, Efficiency of Arbitrage, and Imperfect Competition: Methodology and Application to U.S. Celery

Listed author(s):
  • Kling, Catherine L.
  • Sexton, Richard
  • Carman, Hoy

This paper develops and applies a methodology to test for efficiency of interregional commodity arbitrage. Application of the methodology requires only time-series data on prices for alternative cities, regions, countries, or product forms. Yet, the approach is capable of generating evidence on a number of market parameters including market integration, arbitrage efficiency, the magnitude of marketing margins, product substitutability, and competitiveness of markets. Estimation is based on a switching regression model with three regimes: efficient arbitrage, relative shortage, and relative glut. Results from application of the model to U.S. celery marketing indicated significant departures from efficient arbitrage for both California and Florida celery.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers Archive with number 1609.

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Date of creation: 01 Jan 1991
Publication status: Published in American Journal of Agricultural Economics, January 1991, vol. 70, pp. 568-80
Handle: RePEc:isu:genres:1609
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Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

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