Abstract
AbstractIn this paper, we seek to understand the impact of market competitiveness on the degree of asymmetric price transmission and associated welfare implications. We estimate a kinked Almost Ideal Demand System for fluid milk products in 18 US metropolitan areas. By conducting an asymmetric price transmission test, we find that cities with less competitive food retailing tend to exhibit asymmetric price transmission. The degree of price asymmetry and associated welfare loss are decreasing in market competitiveness. Our welfare analysis suggests that the welfare loss due to asymmetric price transmission is large in terms of the percentage of milk expenditures. The potential is for substantially higher future welfare loss given the ongoing consolidation in the food retailing industry. [EconLit citations: L11, Q11]
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