Spatial Price Dynamics and Pricing Conduct Of Wheat Markets in Ethiopia

Goshu Degye, Shibru Admasu and Kassa Belay

Ethiopian Journal of Economics, 2009, vol. 18, issue 2, 132

Abstract: This paper has examined the spatial integration, price dynamics, and pricing behavior of wheat markets in Ethiopia using 72 months retail price series (July 2001-June 2007) and cross-section data of structural determinants of spatial integration. Dynamic measures of spatial integration including long-run multipliers, speed of spatial price adjustment, and composite index were estimated to measure the magnitude, speed, and extent of spatial linkages and to identify the relative importance and pricing conduct in these markets. The common assertion that Addis Ababa is a central market dictating commodity price formation process in Ethiopia was disproved. Nazreth wheat market was found to be the center of price discovery in the country by dictating price formation in supply markets. The three hypothesized oligopolistic pricing behavior of wheat markets— spatial price discrimination, instantaneous and cooperative pricing, and perfect price matching — were tested. The two hypotheses that wheat markets exercise spatial price discrimination and cooperative pricing were rejected. However, the hypothesis of spatial price discrimination was accepted for some markets trading with Addis Ababa and Nazreth. This is verified to be the result of price discrimination exercised in Addis Ababa and the response of supply markets against the conduct in the destination markets. Supply markets with alternative market outlets were trying to establish short-run market independence depending on the pricing conduct prevalent in the destination markets while those without alternative market outlets were victims of the pricing behavior. This is an indication of inefficient pricing system prevalent in the wheat marketing system. Structural determinants of spatial market integration including inter-market road distance, road density, dissimilarity in per capita wheat production, and dissimilarity in population density were estimated and tested for their possible effect on the level, speed and extent of market integration to identify alternative market development interventions. Except for population density, all the selected factors of market integration were found to significantly determine market integration in Ethiopia. The spatial integration of Ethiopian wheat markets was found to be generally low in magnitude and sluggish in speed because of lack of flexibility and responsiveness of the marketing system.

Keywords: Production; Economics (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:eeaeje:249606

DOI: 10.22004/ag.econ.249606

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