Dynamics of Price Adjustment in Qualitatively Differentiated U.S. Markets: The Case of Organic and Conventional Apples

Abstract

Relationships between organic and conventional counterpart’s prices have become complex with changes in the organic market structure. The concern is whether these fluctuations lead to changes in price dynamics between these products. We investigate price dynamics between organic and conventional apple prices, using an MS-AVECM approach. Additionally, we use Gala, Fuji, and Red Delicious prices to examine whether the use of different-variety leads to different results. The results support the changes in price dynamics of organic and conventional apple and we find evidence of asymmetric responses to negative and positive price changes for both organic and conventional apple.

Keywords: Asymmetric Vector Error Correction Model, Apple, Market integration, Markov Switching