Price Dynamics in a Vertical Sector: The Case of Butter

16 Pages Posted: 21 Apr 2020

See all articles by Jean‐Paul Chavas

Jean‐Paul Chavas

University of Maryland

Aashish Mehta

affiliation not provided to SSRN

Date Written: November 2004

Abstract

We develop a reduced‐form model of price transmission in a vertical sector, allowing for refined asymmetric, contemporaneous and lagged, own and cross‐price effects under time‐varying volatility. The model is used to investigate the wholesale‐retail price dynamics in the U.S. butter market. The analysis documents the nature of nonlinear price dynamics in a vertical sector. It finds strong evidence of asymmetric retail price responses, both in the short term and the longer term, but only weak evidence of asymmetric wholesale price responses. Asymmetric retail responses play a major role in generating a skewed distribution of butter prices. The empirical results indicate the presence of imperfect competition at the retail level.

Keywords: asymmetry, butter, nonlinear dynamics, price transmission

Suggested Citation

Chavas, Jean‐Paul and Mehta, Aashish, Price Dynamics in a Vertical Sector: The Case of Butter (November 2004). American Journal of Agricultural Economics, Vol. 86, Issue 4, pp. 1078-1093, 2004, Available at SSRN: https://ssrn.com/abstract=3579626 or http://dx.doi.org/10.1111/j.0002-9092.2004.00654.x

Jean‐Paul Chavas (Contact Author)

University of Maryland

Aashish Mehta

affiliation not provided to SSRN

No Address Available

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