The evidence of asymmetric price adjustments

Abstract

Matošková (2011) stated that price refers to a motivation power of the supply and demand development in the world markets. The low demand elasticity of agri-food products causes that the small production volume variability might result in significant changes (shocks) in supply and demand and thus also in the price levels. Additionally, the degree of the price transmission influences the price volatility. The empirical studies on price transmission measure the degree to which commodity prices at the geographically separated markets or at different levels of the value chain share common long-run price information (Amikuzuno and Ogundari 2012). According to Matriz (2008), the interaction of prices along the supply chain (vertical price transmission) provides insights into the efficiency of a commodity's market structure, the welfare distribution in an industry, as well as the existence of the market power among the key players. Vavra and Goodwin (2005) indicated that typical features of the vertical price relationships are the magnitude, speed and nature of the adjustment through the supply chain to market shocks generated at different levels of the marketing process.Bakucs et al. (2013) explained several reasons for the existence of the asymmetric price transmission and stated that the price transmission asymmetries are more likely in the presence of the retailers' market power. Additionally, they demonstrated that asymmetries are present in sectors with a higher number of fragmented farm producers and less likely to exist with a more concentrated farm structure. Distortions in the price relationship between retailers and suppliers are more likely to appear in the presence of the regulations limiting the price competition between retailers. Their results also revealed that the more balanced is the bargaining power of farmers and retailers, the more likely one should observe the symmetric price transmission. Cutts and Kirsten (2006) determined that the presence of search costs in local imperfect markets, and a faster response of firms to decreases the profit margins than they do in the case of increases are the reasons for the asymmetric price adjustments.To illustrate the above, Kinnucan and Forker (1987) found that the retail prices were more sensitive to increases in the farm prices than to decreases in the farm prices. Falkowski (2010) detected that the price transmission between the farm and retail levels was affected by both the short-run and long-run asymmetries and the behaviour of prices in the fluid milk sector in Poland is consistent with the use of market power by the downstream sector. Opposite results were investigated in the case of milk prices in Hungary, where no asymmetry was The evidence of asymmetric price adjustmentsZuzana LAJDOVÁ, Peter BIELIK Faculty of Economics and Management, Department of Economics, Slovak University of Agriculture in Nitra, SlovakiaAbstract: Th e paper provides insights into the price transmission of dairy sector in Slovakia and examined the nature of price adjustments...

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