Monday, December 15, 2008
Posted by D. Daniel Sokol
Driss Lkassbi, Gale E. West, and J. Stephen Clark (all of Laval University - Nova Scotia Agricultural College) have a new paper on The Transmission of Price Trends from Consumers to Producers and Tests of Market Power.
ABSTRACT: This study examines the competitiveness of four Canadian agricultural industries (eggs, milk, chicken and turkey) using a general equilibrium farm to retail pricing model developed by Wohlgenant (1989). The model generates retail and farm pricing equations that are estimated using maximum likelihood developed by Johansen (1992). The results indicate that in all cases, long-run constant returns is rejected, indicating market power within the Canadian retail to farm marketing sector. The model also finds more cointegrating vectors than predicted by theory, also inconsistent with competitive markets. Results are based on commercial disappearance as a proxy for consumer demand and therefore confounding between uncompetitive markets and quality differences may be indicated. Less ambiguous results would be obtained if consumer expenditures rather than commercial disappearance data were available. Still, results are rath! er emphatic in rejection of competitive markets in food markets in Canada. More competitive markets are indicated in the United States using similar methods.