Asymmetry in Price Transmission in Agricultural Markets

McLaren, Alain

doi:10.1111/rode.12151

Cited by 28 publications

(25 citation statements)

References 17 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Market power is often assumed to be a potential explanation for asymmetric price behavior (Moorthy, ). McLaren () show evidence of pricing asymmetries between international and domestic prices in the presence of strong monopsony power of agricultural intermediaries. Specifically, he finds that as international price falls, local prices fall proportionally more than when international prices increase.…”

Section: Introductionmentioning

confidence: 99%

Asymmetry Price Transmission in the Deregulated Rice Markets in Bangladesh: Asymmetric Error Correction Model

et al. 2016

View full text Add to dashboard Cite

There is a widely held belief among public consumers that rice prices are manipulated in Bangladesh. This manipulation may have led to price asymmetry in the vertical chain of Bangladesh rice markets. This paper is an attempt to investigate the existence of asymmetry between wholesale and retail rice prices in Bangladesh. Maximum likelihood estimation (MLE) based cointegration test was applied to determine long-run equilibrium relationship. We examine whether the wholesale market dominates the retail market-in terms of price discovery and price leadership-or vice versa. Finally, we analyze whether the wholesale-retail price relationship is asymmetric with respect to price increases and price decreases. To test the asymmetric price transmission we used the asymmetric error correction-EG approach. Our results show that wholesale and retail prices are cointegrated, and wholesale market plays a leadership role in determining retail prices, which is in line with industrial organization theory. Our results confirm the fear and concerns of consumers about the existence of price asymmetry. [JEL Classification: Q110; Q113]. C

show abstract

Section: Introductionmentioning

confidence: 99%

Asymmetry Price Transmission in the Deregulated Rice Markets in Bangladesh: Asymmetric Error Correction Model

et al. 2016

View full text Add to dashboard Cite

show abstract

“…However, for policy makers to act, they must first understand the underlying causes of asymmetric transmission in Vidarbha cotton markets. The literature outlines two possibilities ‐ disproportionate market power (Acharya et al., ; Borenstein et al., ; Kinnucan and Forker, ; Mclaren, ; Powers, ) and/or inappropriate market structure (Peltzman, ; Ward, ).…”

Section: Implications Of Results and Conclusionmentioning

confidence: 99%

Price transmission, asymmetric adjustment and threshold effects in the cotton supply chain: a case study for Vidarbha, India

Shrinivas

Gómez

2016

Agricultural Economics

View full text Add to dashboard Cite

This study examines price transmission asymmetries in Vidarbha's (India) cotton supply chain from 2002 to 2012. The analysis takes account of thresholds in price adjustments toward their long-run equilibrium. The first stage considers the price dynamics between international and Indian domestic cotton prices. The second stage considers price transmission from domestic to farm gate cotton prices in Vidarbha. Results from the first stage indicate that Indian and international cotton markets are well-integrated. In contrast, the second stage reveals significant threshold-type nonlinearities as well as asymmetries in price transmission between domestic and farm gate prices. The short-run dynamics suggest that the pass-through from domestic to farm gate prices is larger when domestic prices decrease than when they increase. Moreover, back of the envelope calculations suggest that the loss in revenue for a typical farmer from a decrease in domestic price is larger than the gains from an increase in domestic price of the same magnitude. The implication is that traders benefit from price fluctuations at the expense of farmers. Evidence from fieldwork in Vidarbha suggest that asymmetries revealed in this analysis may be linked to trader's market power and inadequate market information among farmers.JEL classifications: C32, Q17

show abstract

“…Tifaoui and von Cramon‐Taubadel () recently investigated the impact of the temporary sale price (TSP) on PT for butter in Germany, arguing that the “valleys” generated from TSP increase the speed and asymmetry of vertical PT. Recently, McLaren () developed a theoretical framework to explain the existence of asymmetric price dynamics if there exist sufficiently convex marginal cost curves for market intermediaries, consistent with the monopsony power exerted by them. Investigating the relation between export intermediaries and farmers for a broad range of agricultural products and countries, he found that decreases in farm prices are far more completely passed to Free On Board (FOB) prices than increases.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

“…One may expect the latter to exert market power and the so‐called “rocket and feather” dynamics to occur (i.e., food‐processor price increases are more fully and quickly transmitted to retail prices). According to McLaren (), the relation between retailer and industrial processor at the optimum can be specified as

\bar{P_{r}} = w false(\overset{Q}{true} false) = w false[\overset{Q}{true} (P_{p}) false],

where

\bar{Q} false(P_{p} false)

is the processors’ supply function, with

Q {(P_{p})}^{'} > 0

and

Q {(P_{p})}^{''} \leq 0

w (\bar{Q})

the inverse supply function of retailers, with

w {(\bar{Q})}^{'} > 0

and

w {(\bar{Q})}^{''} \geq 0

, and

\bar{P_{r}}, \bar{Q}

the retail price and quantity maximizing the profit, respectively (for the detailed methodology and derivation, see McLaren, ). The retail price is treated as exogenous, whereas the processor price is considered endogenous.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

See 1 more Smart Citation

Price transmission dynamics for quality‐certified food products: A comparison between conventional and organic fluid milk in Italy

et al. 2018

View full text Add to dashboard Cite

Despite the vast number of works investigating price transmission (PT) processes in diverse agrifood markets, very little has been said about quality-differentiated products. In this paper, we compare the conventional and organic fluid milk sectors in Italy to better understand the economic organization and functioning of one of the most important agrifoods in Italy. Using a unique dataset featuring processor and retail (scanner) prices for the two types of milk, we estimate Momentum-Threshold Autoregressive models to account for asymmetric price movements in both sectors, but the PT results are eventually symmetric. The Vector Error Correction Model estimations and Impulse Response Functions analysis provide significant insights into the differences between the two markets. [EconLit citations: Q130, Q110, C590]

show abstract

Asymmetry in Price Transmission in Agricultural Markets

Cited by 28 publications

References 17 publications

Asymmetry Price Transmission in the Deregulated Rice Markets in Bangladesh: Asymmetric Error Correction Model

Asymmetry Price Transmission in the Deregulated Rice Markets in Bangladesh: Asymmetric Error Correction Model

Price transmission, asymmetric adjustment and threshold effects in the cotton supply chain: a case study for Vidarbha, India

Price transmission dynamics for quality‐certified food products: A comparison between conventional and organic fluid milk in Italy

Contact Info

Product

Resources

About