Food scares, market power and price transmission: the UK BSE crisis

Abstract

This paper is concerned with the impact of food scares, principally the BSE crisis in the UK, and focuses on price transmission in vertically related markets. We show that if market power has an effect on the farm–retail margin, this determines the specification of the cointegrating relationship and thus provides a test of market power. The results for the UK beef chain suggest that we cannot reject the importance of market power. The impact of the BSE crisis on farm prices is found to be more than double that on retail prices, thus corroborating public concerns regarding a differential impact of food scares on retailers and producers.