Thursday, December 16, 2010
Posted by D. Daniel Sokol
Cavicchioli D., Università degli Studi di Milano, Department of Agricultural Food and Environmental Economics an Policy explains Detecting Market Power Along Food Supply Chains: Evidence From the Fluid Milk Sector in Italy.
ABSTRACT: This paper applies to Italian milk supply chain a theoretically grounded methodology able to detect for the presence of market power along the supply chain itself using easily available data. The model, developed by Lloyd et al. brings to estimate a quasi-reduced form equation in which consumer price is regressed against producer price, marketing costs and demand and supply shifters. When market power is exerted along the supply chain both of the shifters are statistically significant and signed accordingly to model prescriptions, while with perfect competition none of the shifters is significant. 29 time series have been used in the analysis, within three different dataset covering partially or totally overlapped time periods. Variables having the same order of integration have been used within an Error Correction Model framework. Among all the variables having one cointegrating vector, only those with statistically sig! nificant parameters and signed according to model prescriptions have brought to conclusive results, detecting market power exertion along the Italian milk supply chain during two over the three periods examined. The present methodology may be useful in competition policy analysis as a preliminary âfastâ test on food supply chain conduct. For this purpose theoretical model validation is however necessary using Monte Carlo simulations. In this line, further improvements relates to explicitly modeling food processing-retailing relationships in order to detect for market power on each segment of the supply chain.