The Farm‐Retail Price Spread in a Competitive Food Industry

Gardner, Bruce L.

doi:10.2307/1238402

Cited by 384 publications

(290 citation statements)

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“…It is, however, important to distinguish between the two types of long-run relationships -static equilibrium where the variables are assumed to be unchanging between periods, and stable equilibrium where all variables are changing at some constant rate. Most previous studies concerning long-run relationships between producer and retail prices are based on static equilibrium models of firm behaviour (e.g., Gardner 1975, Wohlgenant 1989, Griffith and Moore, 1991McCorriston and Rayner, 1998). These studies assume equality of supply and demand in the respective producer, retail and marketing-input markets.…”

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.…”

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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“…In his classic article, Gardner (1975) develops the price transmission model for a competitive market channel. Gardner demonstrates that even if farm production and the marketing industry are perfectly competitive and if constant returns to scale exists in marketing, there is not a unique and stable relationship between farm and retail prices.…”

Section: Price Transmission In An Imperfectly Competitive Market Channelmentioning

confidence: 99%

Antitrust analysis of supermarkets: global concerns playing out in local markets

Cotterill

2006

Aust J Agric Res Econ

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This paper reviews the basic components of antitrust analysis for the supermarket industry, including definition of product and geographic markets and the measurement of market power. The analysis of prices and profits in a market structure context remains important, especially in countries such as Australia with very high supermarket concentration. Firm and brand level New Empirical Industrial Organisation models of demand and oligopoly pricing also provide insights for evaluating antitrust claims. Recent research on vertical pricing games and price transmission expand the analysis to market channel pricing issues, including coalescing power by supermarkets and food manufacturers. The issues and approaches explained in this paper are relevant for policy-orientated research on supermarkets worldwide, including Australia.

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The Farm‐Retail Price Spread in a Competitive Food Industry

Cited by 384 publications

References 3 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

Antitrust analysis of supermarkets: global concerns playing out in local markets

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