Derived Demand and Relationships between Prices at Different Levels in the Value Chain: A Note

Frank Asche, Ola Flaaten, John R. Isaksen and Terje Vassdal

Journal of Agricultural Economics, 2002, vol. 53, issue 1, 101-107

Abstract: In this paper we note that when there is only one variable factor in the intermediaries' production technology, prices at different levels in the value chain will move proportionally to each other over time. This is also the only general condition under which the elasticity of price transmission is equal to one, so that retail price signals are perfectly transmitted to primary product producers and vice versa. This allows a test of whether derived demand elasticities contain information about consumer elasticities using only prices. An empirical illustration is provided using data from the Norwegian cod sector.

Date: 2002
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