Processing Technology, Market Power and Price Transmission

Abstract

This paper focuses on the extent to which price changes occurring at the farm‐level are transmitted to the retail sector. A price transmission elasticity is derived which is shown to depend on the degree of market power in the food industry and the nature of the food industry's processing technology. The offsetting role of the processing technology and market power in determining the extent of price transmission are highlighted. A case‐study reports values for the price transmission elasticity for the US beef and pork sectors.