Investigating market power and asymmetries in the retail-to-farm and farm-to-retail price transmission effects

Farmers and consumers alike have long shared concerns over the behavior of food prices between the farm and the retail levels. The objectives of this study are to estimate the conjectural variations exhibited by the meat packing sectors for the beef, pork, and turkey processing industries and to quantify possible asymmetries in both the farm-retail and the retail-farm price transmission effects. Two hypotheses to be tested are: (1) farm price increases are immediately and fully passed on to consumers, unlike farm price decreases; (2) decreases in retail food prices are immediately and fully passed on to farmers, unlike retail price increases. Additionally, this dissertation tests the hypothesis that marketing margins (defined as the difference between the real farm price and the real retail price) expand with increasing concentration in the processing/marketing sector.;The estimated conjectural variations are negative one, implying that the market power effects of increasing concentration are statistically non-different from zero. The competitive conjectures found in the current study indicate that changes in retail (farm) prices are immediately and fully passed on to farmers (consumers), consistent with the notion of properly functioning markets. Additionally, the coefficients are symmetric with one exception: consumers are found to be more responsive to rising than to falling pork prices.;Margins decrease in response to increasing concentration in the meat packing/processing sector for beef, pork, and turkeys. An advantage of the framework used in the current study is that we can decompose the margin changes into retail and/or farm price impacts. Indeed, the empirical findings indicate that the relationship between concentration and the farm price is statistically insignificant. In contrast, an inverse relationship is found between retail prices and concentration, to the benefit of consumers.