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Estimating strategic price response using cointegration analysis: The case of the domestic black and herbal tea industries

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  • Steven S. Vickner

    (Department of Agricultural Economics, University of Kentucky, Lexington, Kentucky)

  • Stephen P. Davies

    (Department of Agricultural and Resource Economics, Colorado State University, Fort Collins, Colorado)

Abstract

In this article we develop a vector error correction model using weekly, point-of-purchase scanner data to investigate multivariate pricing relationships among brands competing in the domestic black and herbal tea industries. Johansen's likelihood ratio test established the prices of Bigelow black tea and Celestial Seasonings herbal tea were cointegrated; hence, the pricing decisions of the largest firms in each respective tea market were not unrelated. The black tea prices of Bigelow and Twining, the two largest firms in the black tea market, were cointegrated as well. The cointegrating vectors, speeds of adjustment, and impulse response function analysis provide unique insights into the direction, magnitude, and speed of price response in these value-added, agricultural product markets. [EconLit citations: M100, L200, L660] © 2002 Wiley Periodicals, Inc.

Suggested Citation

  • 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.
    • Handle: RePEc:wly:agribz:v:18:y:2002:i:2:p:131-144
    DOI: 10.1002/agr.10012
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    References listed on IDEAS

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    3. 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.
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    7. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393.
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    Cited by:

    1. Jerzy Rembeza & Kamila Radlińska, 2020. "Price Linkages Between Tea Markets: A Case Study for Colombo, Kolkata and Mombasa Auctions," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 134-150.
    2. 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.
    3. Bambang SETIAJI & Henri D. WAHYUDI & Ihwan SUSILA, 2017. "Supply Chain of the Beef Market in Indonesia," Expert Journal of Business and Management, Sprint Investify, vol. 5(2), pages 129-135.

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