Journal
AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS
Volume 86, Issue 4, Pages 1078-1093Publisher
BLACKWELL PUBLISHERS
DOI: 10.1111/j.0002-9092.2004.00654.x
Keywords
asymmetry; butter; nonlinear dynamics; price transmission
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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.
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