Abstract
<p>Asymmetric price transmission in production institutes can be a reason for the existence of market power. In this regard, by the help of an integrative sample, this study simultaneously analyzes the price transmission between production markets and retails markets of sugar in the presence of the parameter of market power. For this purpose, the seasonal data of the required variables during the years 1995-2013 was used. In order to meet the study objectives, the behavior of the retails price of sugar was evaluated in the framework of two regimes of different changes which were compatible with nature of presenting agricultural products that are widely supplied in the harvest seasons. Also, the inverse elasticity of product supply was used as the parameter of market power. Considering the more probable regime (second regime), it was realized that the marketing elements at the wholesale level intend to price transmission increase more intensively than price decrease to the retail trades level. In this regime, asymmetric price transmission and existence of market power were approved. In the first regime, market power was much more and considering the fact that it has the 30% probability of happening, it has more compatibility with the seasons when supply is abundant. In these seasons, sugar production and refining units increase the market power and create a monopsony market in buying the inputs.</p>
Highlights
In the agricultural products, sugar as a strategic product is always considered by governments
By the use of this tool, it was identified that significantly there is a distance between price and marginal cost and it can be a reason for the existence of market power
By relying on the more probable regime, it was clarified that the marketing elements at the producer level are inclined to transmission price increase to the retails level with higher intensity compared to the price decrease
Summary
Sugar as a strategic product is always considered by governments. By counting the annual consumption per capita as 30 kg sugar in the country, the level of annual sugar requirement is measured as 2.3 million tons Half of this quantity is produced domestically and the other half is supplied by import (Customs Department of Islamic Republic of Iran, 2014). In addition to studying the market structure of these industries, the way of price transmission process in the chain of supplying goods has to be studied as well. This is because two of the most effective factors on the welfare of producers are marketing of an item and its consumers. Simultaneous use of market structure concepts and the pattern of price transmission are explained in studies of Liang (1989), and Canaan and Cotterill (2006)
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