U.S. Demand for Selected Groundfish Products, 1967–80: Reply

Abstract

Lin, Johnston, and Rettig (hereafter LJR), as well as Crutchfield, have praised our innovative approach to estimation of market arrangements in a fishery of great importance, and our valuable contribution to the literature. They nonetheless take issue with our conclusion that expected benefits from extended fisheries jurisdiction (EFJ) will not accrue to the fishery current market arrangements are maintained (Tsoa, Schrank, and Roy, p. 489). We arrived at this conclusion on the basis of our analysis of U.S. monthly demand certain narrowly defined groundfish products over the period 1967-80.' We found that U.S. demand these groundfish products was price inelastic and income elastic. LJR have no quarrel with this fundamental result. This was, at least to us, a rather striking finding. It generally had been accepted that groundfish products are very close substitutes one another, and to a lesser degree other food products; and so the demand these products, and even groundfish products generally, should be highly price elastic. This seemed to be confirmed by the available empirical studies, some of which are cited by LJR and Crutchfield.2 A high price elasticity implies that there would be no grounds concern that the benefits of EFJ would be constrained by marketing factors. Only small price adjustments would be required any additional harvest to be absorbed by the market. Unfortunately, these studies were subject to serious specification error, the nature of which is discussed in our earlier paper and will not be considered further here because LJR and Crutchfield do not raise any questions along these lines. We have been able to remove at least some of this error and have reported the results. Among these results was the finding that demand these products is usually price inelastic. On the basis of this evidence, we suggest that if the of fish to the United States increases dramatically because of greater catches by American fleets as well as by fleets of other countries; then, price elasticities are low, extreme reductions in fish prices may be required to enable the American market to absorb the increased supply (Tsoa, Schrank, and Roy, p. 483). LJR have raised the possibility that demand fish products produced domestically may be quite price elastic even though the demand all groundfish products may be price inelastic. Thus, EFJ results in an increase in domestic production, the total revenue to the domestic industry may increase while that of foreign suppliers decreases, or at least remains unchanged. Were LJR's model valid, it would have offered a serious challenge to our conclusions. However, we have serious reservations about the model specified by LJR. Our reservations are centered around the following assumptions which are made in their analysis: (a) that domestic and imported groundfish are perfect substitutes; (b) that there is a well-defined foreign function as postulated in equation (2) of their model; and (c) that domestic will increase while foreign remains constant or even falls as a result of EFJ. First, LJR assume, for convenience, that domestic and imported groundfish products are perfect substitutes. All their analytical results are based on this assumption. In fact, as Crutchfield points out in his comments, most U.S. groundfish landings are marketed fresh, while imported groundfish products are mainly sold in the form of frozen fillets and blocks. Since fresh fish and frozen fillets and blocks are marketed through different channels and to different categories of buyers, there appears to be a segmented market.3 Crutchfield has elsewhere reported cross-price elasticities between domestically produced and imported fish products in the range of 0.09-0.14 (p. 216). This result, which is consistent with ours, suggests that it would be more reasonable to treat imported and domestic fish as unrelated products rather than as close substitutes.