The Evaluation of Asymmetry in Price Transmission and Market Power in Iran Sugar Production Industry

Asymmetric price transmission in production institutes can be a reason for the existence of market power. In this regard, by the help of an integrative sample, this study simultaneously analyzes the price transmission between production markets and retails markets of sugar in the presence of the parameter of market power. For this purpose, the seasonal data of the required variables during the years 1995-2013 was used. In order to meet the study objectives, the behavior of the retails price of sugar was evaluated in the framework of two regimes of different changes which were compatible with nature of presenting agricultural products that are widely supplied in the harvest seasons. Also, the inverse elasticity of product supply was used as the parameter of market power. Considering the more probable regime (second regime), it was realized that the marketing elements at the wholesale level intend to price transmission increase more intensively than price decrease to the retail trades level. In this regime, asymmetric price transmission and existence of market power were approved. In the first regime, market power was much more and considering the fact that it has the 30% probability of happening, it has more compatibility with the seasons when supply is abundant. In these seasons, sugar production and refining units increase the market power and create a monopsony market in buying the inputs.