Detecting Market Power Along Food Supply Chains: Evidence and Methodological Insights from the Fluid Milk Sector in Italy

Abstract

Concerns about the functioning of food supply chains have been raised by the European Commission over past years, calling for more effective and coordinated action by National Competition Authorities (NCAs). To fill this knowledge gap, an equilibrium displacement model is used to screen conduct along the supply chain, combining the advantages of asymmetric price transmission (APT) studies and structural models. The test was carried out on the Italian fluid milk supply chain following market monitoring action by the NCA. Three periods (1996–2003; 2000–2008 and 1996–2008) have been examined, finding imperfect competition over 1996–2008 and 2000–2008, while no conclusions may be drawn over the time span 1996–2003. In the testing process, the model’s peculiarities and certain limitations emerged, and related suggestions for its improvement are discussed. This approach may be used as a preliminary “fast” test for competition policy screening, as a complement to other methodologies. However, further theoretical and empirical model validation is necessary.

The Effects of Agricultural Price Instability on Vertical Price Transmission: A Study of the Wheat Chain in Italy

“…Results indicate that the pasta chain in Italy is characterised by asymmetry in price transmission. As discussed in Sections 1 and 2, this may have several causes, but it is often considered as an indication of power imbalances along the chain [3,6,12,79]. Our analyses highlight how the retail sector seems to act as a price shock absorber, but how there is an asymmetry in the transmission of price rises and falls.…”

“…Other studies have focused on milk-related chains. Cavicchioli [12] and Madau et al [56] studied the buyer power in the supply chain of fresh milk highlighting how market structure affects the upstream and downstream spread of prices. Antonioli et al [57] analysed the differences along quality differentiated chains focusing on conventional and organic milk, finding that the latter chain is more responsive than the conventional one.…”

“…Research has given particular attention to the question of asymmetry of price adjustments [3,4,[8][9][10][11], i.e., the different size and timing with which increases and decreases of prices are transmitted (upstream or downstream) along the food chains [12]. The main explanations for this asymmetry are related to market power, adjustment costs incurred by firms, search costs, policy interventions, and the common belief that a reduction in upstream prices will only be temporary because it will trigger government intervention, while an increase in upstream prices is more likely to be permanent [6,[13][14][15][16][17].…”

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

“…Serra and Goodwin () found symmetric adjustment in highly perishable dairy products in Spain despite a highly concentrated retail level. Concerning the Italian fluid milk sector, Cavicchioli () and later Madau, Furesi, and Pulina () detected the exertion of market power from retailing toward farmers along the fluid milk supply chain. The results obtained by Sckokai et al.…”

Pricing Strategies in the Italian Retail Sector: The Case of Pasta

“…Recent works have demonstrated that retail prices may vary largely as a consequence of dynamic pricing strategies on the part of retailers or manufacturers determining important consequences in the mechanism of price transmission along food supply chains (Ciapanna and Colonna 2011;Cacchiarelli et al 2016;Cavicchioli 2018). In the face of changing supply, the price-fixing decision of the distributor may also depend on the risk, measured by the relationship between demand elasticity and variable costs, as a result of uncertainty in consumer response to price variations (Perez-Mesa et al 2010).…”