Neoclassical economics is shown to yield
predictions consistent with empirical industrial organization models regarding
market middlemen behavior. Diminishing marginal returns to use of variable
factor inputs produces three important predictions: a) the price spread between
the output price and raw material price is positively correlated with output
price, b) the raw material quantity is positively correlated with the price
spread, and c) the price spread is positively correlated with other variable
factor prices. An application to US farm-to-retail price spread time series
data shows the consistency of the predictions.
References
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Rust, J. and Hall, G. (2003) Middlemen versus Market Makers: A Theory of Competitive Exchange. Journal of Political Economy, 111, 353-403. http://dx.doi.org/10.1086/367684
[3]
Wohlgenant, M. (2001) Marketing Margins: Empirical Analysis. In: Gardner, B. and Rausser, G., Eds., Handbook of Agricultural Economics, Vol. 1, Elsevier Science B.V., Amsterdam, 934-970.
[4]
Wohlgenant, M. and Mullen, J. (1987) Modeling the Farm-Retail Price Spread for Beef. Western Journal of Agricultural Economics, 12, 119-125.
[5]
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[6]
Friedman, M. (1976) Price Theory. Aldine Publishing Co., Hawthorn.
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Phillips, P. (1991) Optimal Inference in Cointegrated Systems. Econometrica, 59, 283-306. http://dx.doi.org/10.2307/2938258
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Saikkonen, P. (1991) Asymptotically Efficient Estimation of Cointegration Regressions. Econometric Theory, 7, 1-21. http://dx.doi.org/10.1017/S0266466600004217
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