Masters Theses

Date of Award

8-1995

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

John R. Brooker

Committee Members

David B. Eastwood, Robert P. Jenkins

Abstract

The purpose of this study was to assemble and analyze retail, wholesale, and shipping point price data relevant to east Tennessee producers and consumers. Specifically, the research focused on the vertical price linkages in the vegetable industry. Contents of this study can be divided into five segments: determination of how upstream prices are transmitted, determination of the degree of symmetry between downstream responses to rising and falling upstream prices, determination of when upstream price adjustments are transmitted, determination of the degree of symmetry between the lag periods used to transmit rising and falling upstream prices, and separately analyzing the pricing relationships of the nine vegetables selected for this study. The data used for this study consisted of average weekly shipping point prices, average weekly wholesale prices for Atlanta, Baltimore, Chicago, and Cincinnati, average weekly retail prices adjusted to wholesale and shipping point quantities, and estimated average weekly truck rates from Knoxville to each of the four wholesale cities and back.

In the first segment of this study, a lagged independent variable model was used to construct an empirical description of the vertical pricing relationships for nine vegetables. The sums of the deltas for both upstream price increases and decreases indicated the magnitude of the downstream price responses. The results seemed to signify downstream pricing adjustments at both the retail and wholesale level were generally not in direct proportion to upstream price movements.

An F-test was then used to compare the estimated levels of downstream responses to both rising and falling upstream prices. The results indicated that the downstream price responses were statistically different for five of the nine vegetables at the retail level and for all of the estimated responses at the wholesale level. These results seemed to indicate the use of inefficient pricing behaviors at both the retail and wholesale levels.

The third part of the study was concerned with determining the time periods in which the downstream pricing adjustments occurred. The estimated coefficients which were statistically significant at the 0.15 level were retained in the model and the used to determine the adjustment periods. The results indicated long but quick retail adjustments to upstream price increases, but short and slow adjustments to upstream price decreases. At the wholesale level, the downstream responses to both upstream price increases and decreases were short and slow.

These adjustment periods were then compared to provide further insight into the pricing behavior of downstream participants. The comparison of retail adjustment periods indicated a preference toward adjusting downstream prices in response to upstream price increases, while the comparison of wholesale adjustment periods indicated no biases.

Finally, the previous four segments of the study were combined and applied to each vegetable in order to determine the separate pricing relationships present for those vegetables. Overall, the pricing relationships were similar, but differences indicated the availability of substitutes for a particular vegetable, differences in elasticities among the vegetables, and differing pricing strategies employed by retailers and wholesalers among the different vegetables.

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