Thursday, June 28, 2012
VERTICAL PRICE TRANSMISSION IN DIFFERENTIATED PRODUCT MARKETS: A DISAGGREGATED STUDY FOR MILK AND BUTTER
Posted by D. Daniel Sokol
THORE HOLM, JENS-PETER LOY and CARSTEN STEINHAGEN (all Department of Agricultural Economics, University of Kiel) examine VERTICAL PRICE TRANSMISSION IN DIFFERENTIATED PRODUCT MARKETS: A DISAGGREGATED STUDY FOR MILK AND BUTTER.
ABSTRACT: The retail business is often blamed for employing market power to enforce higher margins. Since 2007 milk markets worldwide have been in turmoil and this public debate flared up again. Only very few papers have addressed the issue by investigating the dynamic pricing process of individual retailers. In this paper variations in vertical price adjustment (cost pass through) between retail and whole sale prices for differentiated milk and butter products (brands) for different (individual) retail outlets in the German market from 2005 to 2008 are analyzed on a weekly basis. The results indicate significant asymmetric price adjustments; however, the starting hypothesis that asymmetric price adjustments are used more excessively by/for stronger brands has to be reconsidered.