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

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  • Nathalie Lavoie

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 CWB?s 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 Canada?s 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 CWB?s pricing strategy may be more complex and dynamic than the prescription for static producer surplus maximization derived in this study.

Suggested Citation

  • Nathalie Lavoie, 2002. "Price Discrimination in the Context of Vertical Differentiation: An Application to Canadian Wheat Exports," Food Marketing Policy Center Research Reports 070, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  • Handle: RePEc:zwi:fpcrep:070
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    File URL: http://fmpc.uconn.edu/publications/rr/rr70.pdf
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