Markup Pricing in a Dynamic Model of the Food Industry

Heien, Dale

doi:10.2307/1239467

Cited by 171 publications

(109 citation statements)

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“…These studies assume equality of supply and demand in the respective producer, retail and marketing-input markets. Due to the existence of short-run disequilibrium in markets and the fact that time is required for markets to clear, Heien (1980) points out that the static equilibrium model is not always appropriate since it has little to say about the time path from one equilibrium point to another. Especially, in oligopolistic markets, where a change in the behaviour of one firm is likely to lead to unspecified responses of rival firms, the entire future time path of choice variables changes as current decisions are made.…”

Section: Introductionmentioning

confidence: 99%

The long run, market power and retail pricing

Jumah

2004

Empirical Economics

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The paper uses the Johansen cointegration approach to analyse long-run pricing strategies of pork and chicken retailers in Austria. Long-run retail pricing strategy is found to be dependent on market share and price elasticity of demand for product. A combination of mark-up pricing strategy for pork and a competitive pricing strategy for chicken is considered by retailers to yield maximum profit. Long-run price adjustment reveals linkages to pricing strategy. The versatility of the Johansen cointegration technique as a tool capable of analysing both competitive and imperfect market situations is also revealed. The paper recommends meat policy to be product specific rather than holistic. KeywordsMarket power, markup pricing, cointegration, long run JEL Classifications C32, D43, L11, Q13 CommentsThe research on which this article is based began in 1995 at the Federal Institute of Agricultural Economics, Vienna, with the support of the Austrian Federal Ministry of Agriculture and Forestry. An earlier version of the paper was presented at the 264 th NFJ Seminar, Alnarp, Sweden, 1996. The author is grateful to Karl M. Ortner for the data and to Robert M. Kunst, Karl M. Ortner, Martin Wagner, and seminar participants for useful comments on earlier drafts.

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Section: Introductionmentioning

confidence: 99%

The long run, market power and retail pricing

Jumah

2004

Empirical Economics

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“…Gardner (1975) set out a six equation model to explain the relation of prices at these levels. Heien (1980) introduced dynamics to the markup model and using retail and wholesale prices for 22 food items estimated the passthrough equations. He found no asymmetric effect-price increases and decreases have the same effect.…”

Section: Patterns Ofmentioning

confidence: 99%

Patterns of Pass‐through of Commodity Price Shocks to Retail Prices

Berck

Leibtag

Solis

et al. 2009

American J Agri Economics

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Commodity prices have been rising at unprecedented rates over the last two years. The primary objective of this paper is to assess if and how firms pass through upstream cost increases to final good prices. First, we investigate what happens to the shelf prices (the regular prices) of goods that contain significant amounts of a commodity whose price has changed. The objective is to document patterns of price rigidity depending on the share of the commodity in the final good that is sold to consumers. For example, given an abnormal commodity price change in wheat, what happens to the shelf regular price of bread, wheat cereals, and other goods that contain wheat? Commodity pass-through patterns for ready to eat cereal (smallest share of commodity in final product) and fresh chicken (largest share of commodity in final good) are investigated. Second, we also assess what happens to the net prices consumers pay (that is the regular price net of discounts offered). One possible way to pass through a cost increase is to reduce the frequency of promotional discounts, or offer smaller discounts to consumers. Upstream commodity input prices used in our investigation are wheat and corn futures prices, to account for upstream inputs, and flour and chicken feed producer price sub indices for downstream cost shocks.We combine several datasets for this empirical analysis: commodity prices, commodity price indices, and scanner data on prices for a variety of goods, over a four year time period and across several stores in California, belonging to a large retail chain. We construct quantity weighted price indices within two product categories sold in the supermarket, where prices are weighted by pre-determined quantity weights to obtain shelf price indices and net price indices. For each of the commodities, regressions will be run using store-level product (UPC) weekly data. The reduced form regressions consist of projecting the shelf price index, as well as the net price index, on commodity prices, other explanatory variables and on region and time dummies. The point estimates measure the effect of residual changes in commodity prices, net of seasonal and regional effects, on the prices consumers face when making purchase decisions. We also construct a variable that measures the frequency of price discounts and relate that variable to the same explanatory variables. We estimate pass through behavior using the above three different measures of retail price activity controlling for cost proxies, store-level fixed-effects and regional time trends using panel data estimation techniques. Results suggest that an important part of retail price variation comes from promotional activities, and the usual shelf price index would underestimate the true pass through coefficient. To deal with omitted variables and price stickiness we included a lagged dependent variable, using the Arellano-Bond dynamic panel estimator. For Chicken the results show that using standard information on regular shelf price leads to an underestimation of ...

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“…Em sua especificação, Houck não faz qualquer menção a respeito de um índice de custo do mercado, mas Carman e Sexton acrescentam esse índice na estrutura, sendo esta a especificação adotada para o presente trabalho (Carman;Sexton, 2005). Para refletir o custo do varejo, deve ser considerada mão-de-obra, energia, custo de armazenamento e embalagem (Heien, 1980).…”

Section: Metodologiaunclassified

“…Essa observação está baseada no modelo de formação de preços de alimentos no varejo de Heien (1980). O equilíbrio na formação de preços do varejo, dados os retornos constantes de escala e função de produção 'Leontief', seria obtido através da aplicação de markup do varejista sobre commodities (Heien, 1980). A hipótese de retornos constantes de escala e custos marginais constantes sugere que a tecnologia envolvida na distribuição e comercialização de produtos no varejo muda lentamente em comparação a outros setores (Parrot;Eastwood;Brooker, 2001).…”

Section: Metodologiaunclassified

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Concorrência e estratégias de precificação no sistema agroindustrial do leite

Azevedo

Politi

2008

Rev. Econ. Sociol. Rural

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O objetivo deste trabalho é caracterizar o padrão de concorrência no mercado de leite fluido (longa vida e pasteurizado), a partir de evidências sobre os movimentos de preços no varejo e do comportamento das margens de mercado. Utilizou-se o modelo originalmente proposto por Houck (1977), acrescido das observações feitas por Carman e Sexton (2005). Essa abordagem separa as variáveis explicativas entre aumentos e diminuições de preços pagos ao produtor e permite comparar a defasagem entre esses dois movimentos e estudar a estratégia de preços dos agentes a partir das margens dos intermediários. O período analisado foi de dezembro de 1999 a dezembro de 2005 com dados de preços ao consumidor da Fundação Instituto de Pesquisas Econômicas (Fipe) e dados de preços ao produtor do Centro de Estudos Avançados em Economia Aplicada (Cepea), da Universidade de São Paulo (USP). Identificou-se que o padrão de concorrência do leite longa vida é bastante distinto do encontrado para o leite pasteurizado. Enquanto para o leite longa vida o padrão de concorrência é mais próximo do modelo competitivo, para o leite pasteurizado o padrão encontrado foi de menor concorrência e liquidez. O vertiginoso crescimento das vendas de leite longa vida, absorvendo grande parte do mercado antes abastecido pelo leite pasteurizado, trouxe maior concorrência nos segmentos de indústria e distribuição, bem como maior velocidade de transmissão de preços ao longo da cadeia produtiva. Entretanto, a precificação com markup com percentual fixo, observada no leite longa vida, indica que indústria e distribuição gozam de algum poder de mercado e que variações absolutas de custo da matéria-prima são repassadas em maior magnitude ao consumidor final.
This article aims to evaluate the degree of competition in the dairy industry, in the relevant markets of Ultra High Temperature (UHT) milk and pasteurized milk, by means of price transmission and marketing margin behavior. The empirical analysis is based on the model formerly proposed by Houck (1977) and latter detailed by Carman and Sexton (2005).This model analyzes separately the effects of input price increases and reductions on consumer prices, allowing for estimations of price transmission and margin behavior. Cepea-USP and Fipe provide, respectively, weekly input prices and consumer prices, both for the period of December 1999 to December 2005. As a major result, the degree of competition in the UHT relevant market was found to be robustly different from the pasteurized milk market. Whereas in the first price transmission corroborates the hypothesis of competitive market, in the pasteurized milk market there is evidence of imperfections both in price transmission and margin behavior. The outstanding increase of UHT milk consumption has fostered competition and liquidity in the dairy industry and milk distribution, allowing for faster price transmission throughout the production chain. Nevertheless fixed markup pricing found in the UHT relevant market shows that dairy industry and milk distribution have s...

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Markup Pricing in a Dynamic Model of the Food Industry

Cited by 171 publications

References 10 publications

The long run, market power and retail pricing

The long run, market power and retail pricing

Patterns of Pass‐through of Commodity Price Shocks to Retail Prices

Concorrência e estratégias de precificação no sistema agroindustrial do leite

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