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Fair Pricing Mechanics

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  • Ronald W. Cotterill

    (University of Connecticut)

Abstract

General Concept: Let’s look at a 200% price collar, that is the retail price can be no more than twice the raw fluid price paid to farmers. (Mass. Bill) Assume: The retail price is $3.00 and the raw price is $1.00 per gallon (near today’s situation). To comply, the channel firms can: 1) Cut the retail price to $2.00. Note: This leaves them $1.00 margin. 2) Raise the farm price to $1.50 by paying a 50¢ over order premium (O.O.P.) Note: This leaves them $1.50 margin. Conclusion: Under this policy processors and retailers will raise raw price by paying over-order premiums.

Suggested Citation

  • Ronald W. Cotterill, 2003. "Fair Pricing Mechanics," Issue Papers 34, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    • Handle: RePEc:zwi:ipaper:34
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    File URL: http://www.zwickcenter.uconn.edu/documents/issuepapers/ip34.pdf
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