Alternative approaches in detecting asymmetry in farm‐retail price transmission of fluid milk

Abstract

AbstractTesting for asymmetric price transmission and calculating elasticities of price transmission are important areas of research for providing insights into market efficiency issues. We analyze the behavior of tests for asymmetry according to the conventional Houck approach and to the von Cramon‐Taubadel and Loy error correction model (ECM) approach. We also estimate the short‐run and long‐run elasticities of price transmission between the farm and retail levels of the marketing channel for whole milk and 2% milk for seven U.S. cities by model specification. We employ monthly data over the period from January 1994 to October 2002. Consistent with the extant literature, empirical results suggest that the farm‐retail price transmission process for milk is asymmetric. Price transmission elasticities, in conjunction with rising farm prices, are generally larger than corresponding elasticities associated with falling farm prices, but they all are quite inelastic. [JEL Classification: Q11, Q13]. © 2007 Wiley Periodicals, Inc. Agribusiness 23: 313–331, 2007.