Estimation of Cost Pass Through to Michigan Consumers in the ADM Price Fixing Case
This report analyzes the economic impact of price fixing in the wet corn milling industry on consumers in the State of Michigan. Two of the companies who produce citric acid have pleaded guilty to fixing its price. In this report we assume that price fixing also occurred among HFCS producers. Given the structure of the corn wet milling industry and the direct purchaser industries, the overcharge is essentially uniform across buyers and selling arrangements. We develop an actual economic model of price transmission based upon the three facts: 1) The overcharge as a percent of the processed product value at wholesale and at retail is small, 2) Fixed proportion technology, and 3) consumers have imperfect information about prices so a small price change has no effect on their purchase behavior. These facts establish that 100 percent or more of the common overcharge will be passed through to consumers. In a more general economic model, we analyze pass through when consumer demand is not perfectly inelastic. For different strategies (profit maximization, sales maximization subject to a target level of profit, and loss leader strategies) and for different market structures (competitive, monopoly, oligopoly), the rate of pass through is 100 percent or greater given certain documented characteristics of the industries in this case. Given the prior points consumer damages are the common overcharges for each commodity times the amount of the commodity sold during the damage period. This is a lower bound estimate of consumer damages because pass through may well be greater than 100%.
|Date of creation:||1998|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.zwickcenter.uconn.edu
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cotterill, Ronald W. & Franklin, Andrew W. & Ma, Li Yu, 1996.
"Measuring Market Power Effects in Differentiated Product Industries: An Application to the Soft Drink Industry,"
25229, University of Connecticut, Food Marketing Policy Center.
- Ronald W. Cotterill & Andrew W. Franklin & Li Yu Ma, 1996. "Measuring Market Power Effects in Differentiated Product Industries: An Application to the Soft Drink Industry," Food Marketing Policy Center Research Reports 032, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
- Gerstner, Eitan & Hess, James D, 1991. "A Theory of Channel Price Promotions," American Economic Review, American Economic Association, vol. 81(4), pages 872-86, September.
- Cotterill, Ronald W, 1986. "Market Power in the Retail Food Industry: Evidence from Vermont," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 379-86, August.
- Fraas, Arthur G & Greer, Douglas F, 1977. "Market Structure and Price Collusion: An Empirical Analysis," Journal of Industrial Economics, Wiley Blackwell, vol. 26(1), pages 21-44, September.
- Hay, George A & Kelley, Daniel, 1974. "An Empirical Survey of Price Fixing Conspiracies," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 13-38, April.
When requesting a correction, please mention this item's handle: RePEc:zwi:fpcrep:039. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.