Price Discrimination in the Context of Vertical Differentiation: An Application to Canadian Wheat Exports

Abstract

The ability of the Canadian Wheat Board (CWB) to price discriminate in wheat exports is examined. The conceptual model shows that the CWB's ability to exploit cost differences in pricing depends on the extent of differentiation between Canadian and U.S. wheat. This model is implemented using monthly confidential price data for exports to four markets from 1982 to 1994. The empirical results support the conclusions that (1) the CWB has market power emerging from product differentiation, (2) the CWB price discriminates across export markets, and (3) Alchian—Allen effects are important in pricing in markets valuing quality such as Japan and the United Kingdom.

Product Differentiation and Quality in Food Markets: Industrial Organization Implications

“…A key paper in this realm is Lavoie (2005), who argues convincingly that quality differentiation is important in the world wheat market. She then uses a vertical differentiation framework to study competition between the United States and Canada, where Canadian wheat is marketed under the auspices of the Canadian Wheat Board (CWB).…”

“…Empirical evidence supports the hypothesis of price discrimination by the CWB. Lavoie (2005) illustrates the importance of analyzing a key policy issue using a model that acknowledges the market's fundamental departures from perfect competition. The CWB has long been controversial; the key question involves the benefits and costs from monopoly selling through the CWB versus a system of private traders.…”

“…1 Should the fact that sales from the production of the thousands of farmers in Australia and Canada, the second-and third-largest wheat-exporting countries, respectively, are in the hands of a single state trader affect Pindyck & Rubinfeld's assessment of competition in the wheat market? Should the fact that wheat is a highly differentiated product, based upon protein content and other factors (Wilson 1989, Lavoie 2005, alter their conclusion?…”

A nagy európai bortermelők piaci árazási stratégiája

“…A korábbi empirikus kutatások középpontjában inkább az ipari termékek és gépek kereskedelme állt, és csak korlátozott számú kutatás foglalkozott a mezőgazdasági, élelmiszeripari termékek kereskedelmének elemzésével (Pick-Park [1991], Lavoie [2005], Jin [2008], Pall et al [2013], [2014]). …”

A világ borkereskedelmének empirikus elemzése

“…A korábbi empirikus kutatások középpontjában inkább az ipari termékek és gépek kereskedelme állt, csak korlátozott számú kutatás foglalkozott a mezőgazdasági és élelmiszeripari termékek kereskedelmének elemzésével (Pick és Park, 1991;Carew és Florkowski, 2003, p. 140;Lavoie, 2005;Jin, 2008;Pall et al, 2013;Pall et al, 2014).…”