Combining Industrial Organization and Econometric Methods in Price Transmission Analysis

Abstract

The degree of competition and level of price transmission in food markets have important effects on the welfare level of consumers and producers. Thus, substantial attention has been paid to the analysis of price transmission in food markets. Traditionally, price transmission analyses have focused on applying econometric methods to assess whether prices are cointegrated, the order of cointegration and the adjustment speed. In contrast, less attention has been devoted to the theoretical underpinnings, the structure of the market and the interpretation of results. To address this gap, this study explores how to combine industrial organization methods and time-series econometrics in price transmission analyses to inform policy choices. With this aim, this research uses a three-step approach. First, I employ industrial organization methods to analyse the structure of the milk market. Second, I use time-series econometrics to assess the price dynamics. Finally, I triangulate the different sources of information, bringing together the evidence derived from both analyses. The study illustrates the complementarity of these methods to gain a better understanding of the findings, to corroborate theoretical propositions and to advance theoretical concepts. The study uses the milk market in Panama to illustrate this approach.