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Estimating strategic price response in a product-differentiated oligopoly: The case of a domestic canned fruit industry

Author

Listed:
  • Steven S. Vickner

    (Department of Agricultural Economics, University of Kentucky, Lexington, KY 40546-0276)

  • Stephen P. Davies

    (Department of Agricultural and Resource Economics, Colorado State University, Ft. Collins, CO 80523-1172)

Abstract

In this article, we empirically estimate the strategic price response in a domestic canned fruit industry using national-level, weekly point-of-purchase scanner data. Augmented Dickey-Fuller tests are used to obtain univariate time series properties of Del Monte and Dole's canned pineapple prices. Johansen's likelihood ratio cointegration test is used to characterize the existence of an industry pricing equilibrium. Vector autoregression and vector error correction models are employed to examine the multivariate time series properties of the two firms' prices. Granger causality tests are used to address the price leadership hypothesis, while impulse response functions are constructed to chronicle the intertemporal price response to an innovation in a rival's price series. The battery of tests indicates that Del Monte follows Dole's pricing decisions in this narrowly defined product market. A thorough understanding of empirical price reactions has far-reaching strategic management implications, such as forecasting a rival's response and avoiding costly price wars. [L110, L200, L660] © 2000 John Wiley & Sons, Inc.

Suggested Citation

  • Steven S. Vickner & Stephen P. Davies, 2000. "Estimating strategic price response in a product-differentiated oligopoly: The case of a domestic canned fruit industry," Agribusiness, John Wiley & Sons, Ltd., vol. 16(2), pages 125-140.
    • Handle: RePEc:wly:agribz:v:16:y:2000:i:2:p:125-140
    DOI: 10.1002/(SICI)1520-6297(200021)16:2<125::AID-AGR1>3.0.CO;2-8
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    References listed on IDEAS

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    1. Golan, Amos & Karp, Larry S. & Perloff, Jeffrey M., 1998. "Estimating Coke and Pepsi's Price and Advertising Strategies," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt18b1q4kr, Department of Agricultural & Resource Economics, UC Berkeley.
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    3. Golan, Amos & Karp, Larry & Perloff, Jeffrey M., 1999. "Estimating Coke and Pepsi's price and advertising strategies," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6rf8j6m4, Department of Agricultural & Resource Economics, UC Berkeley.
    4. David A. Bessler & Derya G. Akleman, 1998. "Farm Prices, Retail Prices, and Directed Graphs: Results for Pork and Beef," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(5), pages 1144-1149.
    5. Cotterill, Ronald W., 1994. "Scanner Data: New Opportunities For Demand And Competitive Strategy Analysis," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 23(2), pages 1-15, October.
    6. Kinsey, Jean D. & Senauer, Benjamin, 1997. "Food Marketing in an Electronic Age: Implications for Agriculture," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 12(2), pages 1-4.
    7. Golan, Amos & Karp, Larry S & Perloff, Jeffrey M, 2000. "Estimating Coke's and Pepsi's Price and Advertising Strategies," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(4), pages 398-409, October.
    8. Cotterill, Ronald W., 1994. "Scanner Data: New Opportunities for Demand and Competitive Strategy Analysis," Agricultural and Resource Economics Review, Cambridge University Press, vol. 23(2), pages 125-139, October.
    9. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
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    Cited by:

    1. Raper, Kellie Curry & Thornsbury, Suzanne & Aguilar, Cristobal, 2009. "Regional Wholesale Price Relationships in the Presence of Counter-Seasonal Imports," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 41(1), pages 271-290, April.
    2. Steven S. Vickner & Stephen P. Davies, 2002. "Estimating strategic price response using cointegration analysis: The case of the domestic black and herbal tea industries," Agribusiness, John Wiley & Sons, Ltd., vol. 18(2), pages 131-144.
    3. Coronese, Matteo & Occelli, Martina & Lamperti, Francesco & Roventini, Andrea, 2023. "AgriLOVE: Agriculture, land-use and technical change in an evolutionary, agent-based model," Ecological Economics, Elsevier, vol. 208(C).
    4. Thor, Eric, III & Bailey, DeeVon & Silvac, Alejandro R. & Vickner, Steven S., 2007. "Economic Analysis of Incentives for Foreign Direct Investment in Beef Systems in Argentina and Uruguay," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 10(3), pages 1-22.
    5. Mohamad F. Hasan & Michael R. Reed & Mary A. Marchant, 2001. "Effects of an Export Tax on Competitiveness: The Case of the Indonesian Palm Oil Industry," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 26(2), pages 77-90, December.
    6. Marcin Pracz & Rod Tyers, 2006. "Strategic Interaction amongst Australia’s East Coast Ports," ANU Working Papers in Economics and Econometrics 2006-471, Australian National University, College of Business and Economics, School of Economics.
    7. Gomez, Miguel I. & Castillo, Mauricio, 2001. "Structural Change, Rents Transferring And Market Power In The International Coffee Market: A Time Series Analysis," 2001 Annual meeting, August 5-8, Chicago, IL 20441, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Gomez, Miguel I. & Koerner, Julia, 2009. "Do retail coffee prices increase faster than they fall? Asymmetric price transmission in France, Germany and the United States," Working Papers 55930, Cornell University, Department of Applied Economics and Management.

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