Imperfect Price Transmission: Is Market Power Really to Blame?

Several studies in the literature have argued that price transmission in vertically‐related markets is imperfect, i.e. that farm input price changes are not fully passed‐through to the final product price. Market power, notably oligopoly, is presumed to be the principal source of imperfect price transmission. To date, the impact of oligopsony (buyer) power on the degree of price transmission has not been evaluated using a formal theoretical model. Moreover, neither has the combination of oligopoly and oligopsony despite the fact that its influence has been formally acknowledged in both the UK and some European food markets. This paper makes a contribution to the literature by developing a model of price transmission where both oligopoly and oligopsony power co‐exist and where industry technology is assumed to be characterised by variable input proportions. It shows that taking the degree of price transmission in a perfectly competitive market as a benchmark, oligopoly and oligopsony power do not necessarily lead to imperfect price transmission, although they can. Indeed, they may counteract each other's impact on the degree of price transmission. The key to these outcomes is to be found in the functional forms for retail demand and farm supply.     

Price and Volatility Transmission and Market Power in the German Fresh Pork Supply Chain

We investigate the relationship between the transmission of price volatility and market power in the German fresh pork supply chain. We use a theoretical model underpinning this relationship followed by an empirical application that uses monthly farm, slaughterhouse and retail pork price data for the period 2000–2011. We examine both the relationships of market power with price level transmission and price volatility transmission in the chain. We use a vector error correction model and least squares regressions to analyse price transmission and price volatility transmissions, respectively. Results show that retail market power limited both types of transmissions. Competition inducing policy measures coupled with measures that support price risk management initiatives of chain actors are suggested.     

农产品垂直价格传递与纵向市场联结

本文分析了我国主要农产品市场垂直价格传递和纵向市场联结的关系。我国农产品市场的两类纵向联结形式以契约市场为准则建立的松散型联结和以产权一体化(或功能层级化)建立的紧密型联结。建立非对称纵向价格传递的误差修正模型(APT-ECM)对四类主要农产品市场的实证分析表明,纵向市场联结越松散(契约型),非对称垂直价格传递特征越微弱;纵向市场联结越紧密(层级型),非对称垂直价格传递特征越明显。     

Price Cycles and Asymmetric Price Transmission in the U.S. Pork Market

Economists have proposed several plausible explanations for observed price transmission asymmetries in commodity markets. Unfortunately, the econometric methods commonly used in such studies cannot empirically distinguish pricing behavior under the competing theories. We argue that the theories may be classified by firm responses to high- and low-frequency price cycles and use Engle's band spectrum regression to test the symmetry of high- and low-frequency cycles in weekly pork prices. The findings indicate that changes in wholesale prices are asymmetrically transmitted to retail prices in relatively low-frequency cycles, which does not support search costs and other high-frequency explanations. Conversely, wholesale pork prices asymmetrically adjust to changes in farm prices at all frequencies.     

Market Power and World Price: The Role of Asian Rice Exporters

An attempt has been made in this study to assess the market power of major Asian exporters in world rice market using standard oligopoly models. Quantity has been used as the strategic variable based on previous literature. Structural and reduced form approaches have been used. Results indicate that the major Asian rice exporters like Thailand, China, and India face a downward sloping demand curve whereas the United States does not appear to possess market power. However, the results are inconclusive about the precise market structure. The results, in the backdrop of the history of world rice markets, indicate a need for Asian exporters to rely more on trade than on domestic stocks in order to reduce the thinness of world rice market.     

Basis Pricing, Futures-Cash Price Transmission and Appropriate Hedge Ratios: The Case of the Soybean Market in Ontario

The academic literature on the determination of risk-minimizing hedge ratios has apparently ignored the potential impact that the pricing strategies adopted by the grain elevators may have on the futures-cash price transmission, and therefore on the determination of the correct hedge ratio. This paper addresses this problem from a theoretical perspective, and then develops a model that is applied to the soybean market in Chatham, Ontario.
La littérature académique concernant la détermination des ratios de couverture à terme minimisant le risque a apparemment ignoré l'impact potential des stratégies des faiseurs de prix sur un marché sur la relation entre les prix spot et les prix à terme. II est possible que de ce fait ces stratégies influencent également la détermination du vrai ratio de couverture. Ce papier traite ce problème d'un point de vue théorique, puis vérifie ces résultats en les appliquant au cas du marché du soja à Chatham, Ontario.     

Tariff Liberalisation,Price Transmission and Rural Welfare in China

China's tariff liberalisation as part of its WTO accession application and eventual agreement has been thoroughly analysed in the literature. However, much of this literature is based on forward‐looking ex‐ante analyses and few studies provide empirical evidence on its actual impact. We fill in this gap by evaluating empirically the welfare effects of China's actual tariff liberalisation on Chinese farmers during the 1997–2010 period. By estimating the domestic market price effects of China's tariff liberalisation and the associated wage earning effects, we find that on average Chinese farmers were able to gain more from reduced consumption prices than they would lose from reduced agricultural and wage income due to tariff liberalisation. Welfare gains over time are estimated to be positively correlated with the actual degrees of tariff liberalisation, implying that relatively more gains were realized immediately before and after China's WTO accession in 2001, as compared to the more recent period when relatively little liberalisation was carried out. Farmers’ rising non‐agricultural income and increasing consumption shares of non‐agricultural products are important determinants of these positive average welfare effects. Moreover, welfare gains from tariff liberalisation are shown to be distributed unevenly across Chinese provinces and income levels, with farmers located in coastal provinces and at higher income levels gaining more than their counterparts in remote provinces and at lower income levels.     

玉米、豆粕与饲料市场的价格联系

本文运用协整检验方法和误差修正模型分析了配合饲料两种主要原料玉米和豆粕价格的波动对育肥猪饲料、肉鸡配合饲料和蛋鸡配合饲料价格的影响及其传导机制.研究表明,玉米和豆粕价格对3种饲料价格的影响存在差异;玉米和豆粕价格同3种饲料价格存在协整关系;原料价格波动是3种饲料价格波动的原因;从短期看,原料市场价格波动对饲料产品价格的引导作用有限.     

Asymmetric Price Transmission: A Survey

Asymmetric price transmission has been the subject of considerable attention in agricultural economics. It is not only important because it may point to gaps in economic theory, but also because its presence is often considered for policy purposes to be evidence of market failure. In this paper we survey the literature on asymmetric price transmission. A wide variety of often conflicting theories of, and empirical tests for, asymmetry co‐exist in this literature. We classify the different types and causes of asymmetric price transmission and describe the econometric techniques used to quantify it. We also briefly review the results of empirical applications. Outstanding methodological problems and suggestions for future research are discussed. Our main conclusion is that the existing literature is far from being unified or conclusive, and that it has often been largely method‐driven, with little attention devoted to theoretical underpinnings and the plausible interpretation of results. Hence, much interesting theoretical and empirical work remains to be done.     

The Market Structure and Price Competition in China's Wheat Import Market:

This paper reveals that wheat exporters to China compete in an imperfectly competitive market. U.S. wheat exports face strong price competition from Argentina, Australia, Canada, and the European Community, but has a highly elastic demand in China. By adopting an aggressive promotion policy, the U.S. could reduce the market shares of Argentina and Canada. China would shift to wheat from Argentina, Australia, and Canada if U.S. wheat exports were interrupted because of high prices or non-price trade frictions. An expansion in China's wheat imports would accrue to wheat from Argentina and the U.S.     

Measurement and Testing for Equality of Foreign Price and Consumer Price Index Transmission in Russia

This paper tests for segmentation of retail meat markets in Russia before and after the financial crisis of 1998. Using monthly prices of pork and beef in 80 regions of Russia from 1994 to 1999, we measure the short-run response of regional prices to changes in foreign prices and domestic inflation. We find that changes in both foreign prices and domestic inflation have distinct impacts on the prices of these commodities in different Russian cities, indicating that the markets are segmented in the short run. An analysis of the effect of the financial crisis shows that the response to the crisis was mixed, with some regions showing more evidence of segmentation than others.     

中国大米市场价格共因子分析

内容提要:本文利用持续—短暂模型(permanent-transitory model,简写为p-t模型)分粳米和籼米对中国大米市场价格共因子进行了分析。研究发现,在中国粳米市场价格长期行为的形成过程中,湖北、天津、黑龙江、吉林、浙江和江苏的影响比较大,其中,浙江起主导作用;在中国籼米市场价格长期行为的形成过程中,广西、湖北、湖南、江西、四川和浙江的影响比较大,其中,江西起主导作用。在决策过程中,决策者应重点考虑对影响较大的地区采取有针对性的措施。     

Martingale Restrictions and the Implied Market Price of Risk

The market price of risk is conceptually one of the most critical artifacts of modern finance, since it provides the linkage between equilibrium and arbitrage models of derivatives pricing. In this paper, the market price of risk is derived for options on live cattle futures contracts. It provides a technique to extract the implied market price of risk (iMPR), which is conceptually similar to that used in extracting implied volatilities. It is shown that the iMPR is not linear across strike prices as theory suggests it should.
Le prix de marché du risque est conceptuellement l'un des artéfacts les plus importants de la finance moderne puisqu'il établit le lien entre les modèles d'équilibre et les modèles d'évaluation par arbitrage de l'établissement des prix des dérivés. Dans le présent article, le prix de marché du risque est dérivé pour les options sur contrats à terme de bovins vivants. Il offre une technique pour extraire le prix de marché implicite du risque qui est conceptuellement similaire à celle utilisée pour extraire les volatilités implicites. Il est montré que le prix de marché implicite du risque n'est pas linéaire pour tous les prix de levée comme la théorie semble l'indiquer.     

Market Price Response of World Rice Research

Using the total number of research publications as a proxy, the output of rice research in the world is estimated to be highly responsive in the short run to price fluctuations in the international rice market. The results suggest a danger of the inducement mechanism of public investment in the agricultural production infrastructure being misguided by cyclical price changes, thereby leading to recurrent food shortages and oversupplies in a cobweb-like manner.     

Price Asymmetry in the International Wheat Market

Most wheat exports are accounted for by a limited number of countries with different policy regimes and specializing, for the most part, in particular classes of wheat. Under these circumstances, there is likely to be considerable interaction among the major exporting countries in the determination of wheat prices. In this paper, price linkages between the U.S. and other exporting countries (Canada, the European Union, Argentina and Australia) in the world wheat market are investigated. After determining that the direction of causality is from U. S. prices to the prices of other exporting countries, the nature of the price linkages is studied. The results suggest that the major exporting countries respond asymmetrically to U.S. price changes. The degree of asymmetry differs from one exporting country to another, Argentina and the European Union show greater response to falling prices than to rising prices, while the opposite is true for Canada and Australia.     

Black Sea and World Wheat Market Price Integration Analysis

In 2008–10, Russia and Ukraine together exported an average of 29 million tons of wheat per year, and have become important players in the international wheat market. This research summarizes the short‐ and long‐run wheat price dynamics between Ukraine and Russia, and other major wheat exporters—the United States, European Union (EU), and Canada—from 2004 to 2010. Tests of market price co‐integration (Johansen maximum likelihood test and residual‐based tests) as well as threshold error correction techniques were performed for this purpose. The results suggest that Russian wheat prices were co‐integrated with EU and U.S. wheat prices but not with Canadian wheat prices. Ukrainian wheat prices were found to be co‐integrated with French wheat prices only. The estimated long‐run wheat price transmission elasticities were estimated to be equal to 1.04 between Russian and French (a representative country of the EU) wheat prices, 1.16 between Russian and U.S. wheat prices, and 1.05 between Ukrainian and French wheat prices. We also found the short‐term relationships between the co‐integrated series to be statistically significant. Price adjustments in all co‐integrated prices were found to be symmetric.     

水价、水权和水市场

我国人均水资源占有量只有2200m^3，不到世界人均占有量的1/4，是世界13个贫水国之一，随着人口增加和国民经济发展，我国用水量将增加到2000～8000亿m^3/年，水资源已呈现缺口，因此加强节水和保护水资源已刻不容缓。而采用经济手段，研究和解决好水价、水权和水市场问题，建立适应中国国情的水利发展机制，是促进节水和水资源可持续利用的重中之重。     

Martingale Restrictions and the Implied Market Price of Risk

The market price of risk is conceptually one of the most critical artifacts of modern finance, since it provides the linkage between equilibrium and arbitrage models of derivatives pricing. In this paper, the market price of risk is derived for options on live cattle futures contracts. It provides a technique to extract the implied market price of risk (iMPR), which is conceptually similar to that used in extracting implied volatilities. It is shown that the iMPR is not linear across strike prices as theory suggests it should.
Le prix de marché du risque est conceptuellement l'un des artéfacts les plus importants de la finance moderne puisqu'il établit le lien entre les modèles d'équilibre et les modèles d'évaluation par arbitrage de l'établissement des prix des dérivés. Dans le présent article, le prix de marché du risque est dérivé pour les options sur contrats à terme de bovins vivants. Il offre une technique pour extraire le prix de marché implicite du risque qui est conceptuellement similaire à celle utilisée pour extraire les volatilités implicites. Il est montré que le prix de marché implicite du risque n'est pas linéaire pour tous les prix de levée comme la théorie semble l'indiquer.     

赴南非水价、水权与水市场管理及其相关政策考察报告

通过对南非水利建设的考察，深刻地认识到必须非常重视水利法规建设，坚持水资源的可持续利用，加强水资源保护，着力解决好水环境污染问题，逐步建立完善的水价形成机制、以推进我国水利事业的发展。     

Price Transmission in Nigerian Food Security Crop Markets

This paper comprehensively examines price transmission from world, neighbour country, and internal commercial hub markets to Nigerian urban markets, as well as from urban to rural markets within the country, for seven key food security crops (maize, millet, sorghum, rice, cassava, yams and cowpeas). There are three key findings: (i) tradability matters for price transmission, but tradability varies across crops and regions. The strongest international linkages are with neighbouring countries. Rice price transmission is high across all markets, while coarse grain price correspondence is low with world prices but high with neighbour country market prices; (ii) our results imply that local conditions matter for price transmission, and are relatively more important than trade for some crops (e.g. yams, cassava) than others (e.g. imported rice, maize); (iii) larger than expected long‐run price transmission parameters in world and neighbour countries for rice and coarse grains suggest that, in these select markets, there are either large transactions costs or quality premiums that vary systematically with border prices, and/or mark‐ups captured by traders with market power.