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

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  • Kling, Catherine L.
  • Sexton, Richard
  • Carman, Hoy

Abstract

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.

Suggested Citation

  • Kling, Catherine L. & Sexton, Richard & Carman, Hoy, 1991. "Market Integration, Efficiency of Arbitrage, and Imperfect Competition: Methodology and Application to U.S. Celery," Staff General Research Papers Archive 1609, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:1609
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