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Elasticities of substitution between marketing and farm inputs in a complete system of food commodities

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  • Youhong Lee
  • Qingxiao Li
  • Metin Çakır

Abstract

The elasticities of substitution between marketing and farm inputs are important for modeling the shape of derived demand and understanding the market structure in the food market. Wohlgenant develops a theoretical framework and finds significant substitution between marketing and farm inputs. The estimates in Wohlgenant have been widely used in economic studies on the US food market, and in this paper, we replicate the results, perform robustness checks, and update the estimates using recent data. Despite minor discrepancies, we are able to replicate most of the results in Wohlgenant and maintain robust estimates when we apply ridge regression. Using updated data, we calculate new estimates of the elasticities and find that marketing firms have become less competitive. We discuss important market trends in recent years and highlight potential venues for future research.

Suggested Citation

  • Youhong Lee & Qingxiao Li & Metin Çakır, 2023. "Elasticities of substitution between marketing and farm inputs in a complete system of food commodities," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(3), pages 1450-1471, September.
    • Handle: RePEc:wly:apecpp:v:45:y:2023:i:3:p:1450-1471
    DOI: 10.1002/aepp.13322
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    1. Huang, Kuo S & Haidacher, Richard C, 1983. "Estimation of a Composite Food Demand System for the United States," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(4), pages 285-291, October.
    2. Jeffrey J. Reimer, 2006. "Vertical Integration in the Pork Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 234-248.
    3. repec:aei:rpaper:34013 is not listed on IDEAS
    4. Wohlgenant, Michael K. & Haidacher, Richard C., 1989. "Retail to farm linkage for a complete demand system of food commodities," Technical Bulletins 312312, United States Department of Agriculture, Economic Research Service.
    5. Michael K. Wohlgenant, 1989. "Demand for Farm Output in a Complete System of Demand Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(2), pages 241-252.
    6. Harp, Harry H., 1980. "The Food Marketing Cost Index: A New Measure for Analyzing Food Price Changes," Technical Bulletins 157677, United States Department of Agriculture, Economic Research Service.
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