Market Power and Risk of Price Uncertainty (A Case Study of Date Market)

اقتصاد و توسعه کشاورزی

Article 1, Volume 30, Issue 2, June 2016, Pages 107-116   

Document Type: Research Article

DOI: 10.22067/jead2.v30i2.50006

Authors

M.N. Shahiki Tash¹; Z. Sheidaii²; A. Mohammadzadeh^{* 1}

¹University of Sistan and Baluchestan

²University of Mazandaran, Babolsar

Abstract

Date is as one of the important items of the agricultural production in Iran as Iran's share of global production was 14.1% in 2012 and rank of production increased to second in the world too. In recent years, price uncertainty in date market has increased due to changes in government policies on date prices pattern, from a guaranteed buying pattern to negotiated price pattern. According to the importance of this industry in the country and issues that are always in marketing and market making of agricultural products in developing countries, This paper seeks to measure marketing margins in the industry due to the product's market power and price volatility, and to achieve this goal, the main idea of this paper based on the study Brorsen et al (11). This paper provides a conceptual and empirical framework for analyzing marketing margins in a date market facing output price uncertainty in Iran. Present study evaluated marketing margins into component reflecting the marginal cost of the processing industry, oligopoly price distortions, and an output risk component. The empirical finding is that, while marketing margin is about 33%, the coefficient for oligopoly is more than the coefficient for oligopsony. In the other words, there is an asymmetric monopoly power among buyers and sellers, Also the estimated coefficient for price risk based on exponential GARCH approach indicates, this factor would affect the marketing margin about 7 percent, if all other factors remain constant.

Keywords

date prices; marketing margins; Market Power; Risk

References

1- Alijani F., and Sabuhi M. 2009. Measurement of Market Power and Cost Efficiency of Beef and Veal Production and Distribution. Agricultural Economics Research. 1(4) 77- 90. (in Persian with English abstract)

2- Hoseini S., Abasifar A., and Shahbazi H. 1999. Investigation Market Power in Marketing Chain of the Meat in Iran. Journal of Agricultural Economics and Development . 62 (5)15- 32. (in Persian with English abstract)

3- Shahiki Tash M. N., Gholipoor Bolsi E., and Mohammadzadeh A. 2014. Investigation Food and Beverage Industry Market Structure and Market Power on Approach and Leo- Bresnahan. Journal of Economics and Agricultural Development, 29: 204-215. (in Persian with English abstract)

4- Shahiki Tash M. N., and Mohammadzadeh A. 2013. Measurement of Conjectural Variations in Oligopoly Structure (using Iwata Approach for Iranians Food and Beverage Industry). Journal of Economics and Agricultural Development, 28: 272-281. (in Persian with English abstract)

5- Sheikhzeinodin A., and BAkhshudeh M. 2008. Market Power Live Animals and Cost Efficiency in the Red Meat Industry Case Study of Fars Industry Meat. Journal Agricultural Economics and Development. 61 (2)125- 143(in Persian with English abstract)

6- Abayasiri-Silva K. 1999. Market Power in Australian Manufacturing Industry: A Confirmation of Hall’s Hypothesis. Centre of Policy Studies, Nonash University, General Paper No. G-132.

7- Allender W. J., and Richards Timothy J. 2010. Market Diversion and Market Power: California Eggs. Rev Ind Organ, 36(2): 37–58.

8- Azzam A. 1997. Measuring market power and cost- efficiency effects of industrial concentration, Journal of industrial economics, 45 (4): 377-86.

9- Bresnahan T. F. 1982. The oligopoly solution concept is identified. Economics Letters, 10(4): 87-92.

10- Bresnahan T. F. 1989. Studies of Industries with Market Power, Handbook oflndustrial Organization, vol, 2, Richard Schmalensee and Robert Willig, New York: North Holland.

11- Brorsen B.W. 1985. Marketing Margins and Price Uncertainty: The Case of the U.S. Wheat Market, American Journal of Agricultural Economics,. 67:3, 521-528

12- Boyle G.E. 2004. Hall–Roeger tests of market power in Irish manufacturing industries. The Economic and Social Review, 35: 289–304.

13- Hall R. E. 1988. The relationship between price and marginal cost in U.S. Industry, Journal of Political Economy, 96: 921-47.

14- Koontz S. R. 2003. Market power in the United States red meatpacking industry. Veterinary Clinics of North America: Food Animal Practice, 19: 519-544.

15- Lau Lawrence J. 1982. On Identifying the Degree of Competitiveness from Industry Price and Output Data, Economics Letters, 10(1): 93-99.

16- Oustapassidis K., Vlachvei A., and Notta O. 2000. Efficiency and Market Power in Greek Food Industries. American Journal of Agricultural Economics, 82(5): 623-629.

17- Rezitis A.N. 2008. Efficiency and productivity effects of bank mergers: evidence from the Greek banking industry. Economic Modelling, 25(3): 236–254.

18- Saitone T. L., Sexton R. J., and Sexton S. E. 2008. Market Power in the Corn Sector: How Does It Affect the Impacts of the Ethanol Subsidy? Journal of Agricultural and Resource Economics, 33(4): 169-194

19- Salhofer K., Tribl C., and Sinabell F. 2012. Market power in Austrian food retailing: the case of milk products. Science+Business Media, 39: 109–122.

20- Steen F., and Salvanes K. G. 1999. Testing for market power using a dynamic oligopoly model. International Journal of Industrial Organization, 17: 147-177.