Price skewness and the marketing of finished cattle

Abstract

Incomplete information about product quality generates risk for market participants. The amount of information and perceived risk varies between marketing channels and an agent's attitude to this risk influences their choice of marketing channel. For risk-averse sellers, expected price and the associated price risk (dispersion) are relevant to their choice of marketing route. This paper examines how the choice of marketing channel by farmers selling finished cattle is influenced by their perceptions of expected market price and price variation. The study uses a unique dataset of “matched” animals, sold first in liveweight auction markets in Northern Ireland and subsequently to a meat packer. The findings indicate that price skewness also influences channel choice. The positive skewness exhibited by auction market prices combined with the negative skewness exhibited by meat packer prices may mean that some risk-averse individuals, faced with incomplete information about product quality, prefer the liveweight auction market to selling directly to meat packers [JEL Codes: Q110]. © 2000 John Wiley & Sons, Inc.