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Competitive Storage, Rational Expectations, and Short-Run Food Price Determination

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  • Michael K. Wohlgenant

Abstract

This paper demonstrates that lags between retail and wholesale food prices can be explained by inventory behavior of retailers. Theoretical considerations indicate that the markup model should be modified to include a Jorgenson-type user cost variable, which depends on expected future wholesale price. The rational expectations hypothesis is used to derive price expectations. The retail price specification, therefore, depends on the stochastic process generating expected wholesale price. The econometric methodology, employing both causality testing and nonlinear estimation, is illustrated by estimating monthly price relationships for beef. The results are consistent with the theory and indicate rejection of the markup model.

Suggested Citation

  • Michael K. Wohlgenant, 1985. "Competitive Storage, Rational Expectations, and Short-Run Food Price Determination," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(4), pages 739-748.
    • Handle: RePEc:oup:ajagec:v:67:y:1985:i:4:p:739-748.
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    File URL: http://hdl.handle.net/10.2307/1241813
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    Cited by:

    1. Bakucs, Lajos Zoltan & Falkowski, Jan & Ferto, Imre, 2012. "What causes asymmetric price transmission in agro-food sector? Meta-analysis perspective," 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK 134765, Agricultural Economics Society.
    2. Liang, Jing, 2010. "Three essays on food safety and foodborne illness," ISU General Staff Papers 201001010800002782, Iowa State University, Department of Economics.
    3. Jha, Raghbendra & Murthy, K. V. B. & Nagarajan, Hari K. & Seth, Ashok, 1999. "Components of the wholesale bid-ask spread and the structure of grain markets: the case of rice in India," Agricultural Economics, Blackwell, vol. 21(2), pages 173-189, October.
    4. Abdulai, Awudu, 2000. "Spatial price transmission and asymmetry in the Ghanaian maize market," Journal of Development Economics, Elsevier, vol. 63(2), pages 327-349, December.
    5. Raghbendra Jha & Hari K. Nagarajan, 2002. "Noisy Vertical Markets," ASARC Working Papers 2002-04, The Australian National University, Australia South Asia Research Centre.
    6. Michel Simioni & Frédéric Gonzales & Patrice Guillotreau & Laurent Le Grel, 2013. "Detecting Asymmetric Price Transmission with Consistent Threshold along the Fish Supply Chain," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 61(1), pages 37-60, March.
    7. Maurizio Aragrande & Mauro Bruni & Alberico Loi & Roberto Esposti, 2017. "The effect of EU 2006 sugar regime reform on vertical price transmission," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 5(1), pages 1-20, December.
    8. Lea, J.D. & Shonkwiler, John Scott, 1988. "Misspecification In Simultaneous Systems: An Alternative Test And Its Application To A Model Of The Shrimp Market," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 20(2), pages 1-8, December.
    9. Muhammed A. Usman & Mekbib G. Haile, 2017. "Producer to retailer price transmission in cereal markets of Ethiopia," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 9(4), pages 815-829, August.
    10. Kim, Hyeyoung & Ward, Ronald W., 2013. "Price transmission across the U.S. food distribution system," Food Policy, Elsevier, vol. 41(C), pages 226-236.
    11. Shadrack Muthami Mwatu & Charity Kageni Mbaka & John Gakuu Karanja & Grace Mukami Muriithi, 2024. "Trade Agreements, Technical Regulations, and Standards: Competitiveness Implications for Kenyan Exporters to European Union," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 36(2), pages 381-410, April.
    12. Abdessalem Abbassi & Lota D. Tamini & Jean‐Philippe Gervais, 2012. "Do Inventories Have an Impact on Price Transmission? Evidence From the Canadian Chicken Industry," Agribusiness, John Wiley & Sons, Ltd., vol. 28(2), pages 173-186, March.
    13. Carambas, Maria Cristina D.M., 2005. "Analysis of Marketing Margins in Eco-Labeled Products," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24600, European Association of Agricultural Economists.
    14. Azzam, Azzeddine M. & Pagoulatos, Emilio & Schroeter, John R., 1988. "Agricultural Price Spreads And Market Performance," Working Papers 115900, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
    15. Solomon Odiase & Sayed H. Saghaian, 2022. "Impact of COVID-19 Pandemic on Vertical Price Transmission in the U.S. Fresh Banana Market," Sustainability, MDPI, vol. 14(10), pages 1-16, May.
    16. Richards, Timothy J. & Patterson, Paul M. & van Ispelen, Pieter, 1998. "Modeling Fresh Tomato Marketing Margins: Econometrics And Neural Networks," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), pages 1-14, October.
    17. Drabik, Dušan & Ciaian, Pavel & Pokrivčák, Ján, 2016. "The effect of ethanol policies on the vertical price transmission in corn and food markets," Energy Economics, Elsevier, vol. 55(C), pages 189-199.
    18. Griffith, Garry R. & Moore, Walter B., 1991. "Livestock Production Policies And Meat Processing Margins: The Case Of New Zealand, 1967-1988," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 35(1), pages 1-28, April.

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