Vertical price leadership: A cointegration analysis

W. Erno Kuiper and Matthew T.G. Meulenberg
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W. Erno Kuiper: Marketing and Consumer Behavior Group, Department of Social Sciences, Wageningen University, Hollandseweg 1, NL-6706 KN Wageningen, The Netherlands, Postal: Marketing and Consumer Behavior Group, Department of Social Sciences, Wageningen University, Hollandseweg 1, NL-6706 KN Wageningen, The Netherlands
Matthew T.G. Meulenberg: Marketing and Consumer Behavior Group, Department of Social Sciences, Wageningen University, Hollandseweg 1, NL-6706 KN Wageningen, The Netherlands, Postal: Marketing and Consumer Behavior Group, Department of Social Sciences, Wageningen University, Hollandseweg 1, NL-6706 KN Wageningen, The Netherlands

Agribusiness, 2002, vol. 18, issue 3, 317-331

Abstract: Here we detail a method to test whether or not retailers allow suppliers to set the wholesale price not only on the basis of the costs faced by the suppliers but also on the basis of consumer demand. Using standard theory, long-run price relationships between the stages in the channel are derived. Next, these static price relationships are imposed on a dynamic model to be tested for cointegration and long-run noncausality, embedding the hypotheses on vertical price leadership. To derive the testable implications of these hypotheses, we show that the common stochastic trend and long-run equilibrium error must explicitly be assigned to variables in the channel model. The model is particularly relevant for industries characterized by a low degree of product differentiation. An empirical application to two Dutch marketing channels for food products gives comprehensible results. [EconLit citations: C32, L12, Q11] © 2002 Wiley Periodicals, Inc.

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:wly:agribz:v:18:y:2002:i:3:p:317-331

DOI: 10.1002/agr.10025

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