Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Thursday, February 24, 2011

Modeling Processor Market Power and the Incidence of Agricultural Policy: A Non-parametric Approach

Posted by D. Daniel Sokol

Rachael E. Goodhue, University of California at Davis-Agricultural and Resource Economics and Carlo Russo, Università degli Studi di Cassino-Facoltà di Economia discuss Modeling Processor Market Power and the Incidence of Agricultural Policy: A Non-parametric Approach.

ABSTRACT: This paper examines interactions between market power and agricultural policy in the U.S. wheat flour milling industry using a non-parametric approach. The analysis focuses on marketing loan and pre-1986 deficiency payment programs; farmers’ payments from these programs are dependent on whether or not the market price exceeds a “policy” price. It assesses if the payments trigger a change in the underlying economic behavior of the milling industry, and any resulting change in the flour-wheat price margin. The analysis compares the outcomes of using constrained and unconstrained sliced inverse regressions in order to identify the significant factors affecting millers' pricing behavior. In both cases, the link functions are then estimated using a non-parametric regression of prices on these factors. Constraining the factors in the sliced inverse regression in order to generate coefficients that are easily interpreted using economic theory does not affect the results. Based on the SIR factors, millers were able to extract an additional $0.24/cwt. of flour by increasing their marketing margins in years farmers received program payments. Based on the CIR factors, the increase in the marketing margin was $0.23/cwt. In both cases the increase was approximately 10 percent of the estimated marketing margin in years farmers received program payments.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/02/modeling-processor-market-power-and-the-incidence-of-agricultural-policy-a-non-parametric-approach.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0148c7f2a459970c

Listed below are links to weblogs that reference Modeling Processor Market Power and the Incidence of Agricultural Policy: A Non-parametric Approach:

Comments

Post a comment