Asymmetric Price Transmission, Market Power, and Supply and Demand Curvature
Journal of Agricultural & Food Industrial Organization, 2009, vol. 7, issue 1, 1-25
This paper studies asymmetries in the magnitude of price transmission from farm to retail markets in a simple framework consisting of three stages of the market chain: farm, wholesale, and retail. The effects of farm supply curvature and buyer power in farm markets, in addition to those of consumer demand curvature and seller power in retail markets, on asymmetries in price transmission are examined. Strict convexity of farm supply and wholesalers/processors' buyer power in farm markets are shown to be a main reason for asymmetries in the magnitude of farm-retail price transmission. The effect of consumer demand curvature and seller power in retail markets on farm-retail price transmission is often indeterminate and tends to be relatively small.
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