All Title Author
Keywords Abstract

Market Middlemen and Determinants of the Price Spread under Competition

DOI: 10.4236/tel.2014.49106, PP. 834-838

Keywords: Middlemen, Diminishing Marginal Returns, Competition

Full-Text   Cite this paper   Add to My Lib


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.


[1]  Spulber, D. (1996) Market Making by Price-Setting Firms. Review of Economics Studies, 63, 559-580.
[2]  Rust, J. and Hall, G. (2003) Middlemen versus Market Makers: A Theory of Competitive Exchange. Journal of Political Economy, 111, 353-403.
[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]  Spulber, D. (1996) Market Microstructure and Intermediation. The Journal of Economic Perspectives, 10, 135-152.
[6]  Friedman, M. (1976) Price Theory. Aldine Publishing Co., Hawthorn.
[7]  Phillips, P. (1991) Optimal Inference in Cointegrated Systems. Econometrica, 59, 283-306.
[8]  Saikkonen, P. (1991) Asymptotically Efficient Estimation of Cointegration Regressions. Econometric Theory, 7, 1-21.
[9]  Panzar, J. and Willig, R. (1978) On the Comparative Statics of a Competitive Industry with Inframarginal Firms. The American Economic Review, 68, 474-478.
[10]  Buccola, S. (2000) Material and Value-Adding Inputs in Manufacturing Enterprises. Journal of Productivity Analysis, 13, 231-247.


comments powered by Disqus