Price Formation and Market Integration on the European First-hand Market for Whitefish

Abstract

Total Allowable catches (TACs) for whitefish in European Union (EU) waters have been reduced each year for the past five years, thereby reducing fleet revenue. During the same period prices increased, partly offsetting income reductions. However, price changes depend on the structure of the market within which they are formed. Therefore, this paper examines the structure of the European first-hand market for whitefish. A Vector Auto Regressive (VAR) model in Error Correction form (ECM) is used to analyse landing prices among the main fishing nations, using co-integration tests and tests for the Law of One Price (LOP) to determine the degree of market integration. A partially integrated European first-hand market for whitefish is identified and as a part of this, a perfectly spatially integrated cod market. The existence of this relatively loose market integration is explained by the presence of rigidities on the supply side. The implications are discussed in relation to reductions in EU whitefish TACs and quotas and the market policies applied.