PRICE TRANSMISSION, MARKET POWER AND RETURNS TO SCALE: A NOTE

Xiuqing Wang, Habtu Tadesse and Tony Rayner

Discussion Papers from University of Nottingham, School of Economics

Abstract: In this paper, we aim to model the vertical relation between retailers and suppliers in the food industry whereby retailers exercise seller power in their relation with consumers and buyer power in their relation with producers. We then evaluate the degree of price transmission, relative to the perfectly competitive benchmark, from the farm to the retail sector assuming a supply shock. With the view to evaluating the impact of market power's interaction with industry technology on the degree of price transmission, we assume industry technology to be characterized by variable input proportions and non-constant returns to scale. Our model predicts that, relative to that which obtains when markets are perfectly competitive and industry technology is characterized by constant returns to scale, the degree of price transmission when market power and industry technology interact cannot be unambiguously determined.

Keywords: price transmission; returns to scale; market power (search for similar items in EconPapers)
Date: 2006-07
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Citations: View citations in EconPapers (7)

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