Market power of German food and beverage industries on international markets

In this paper the existence and magnitude of market power for German beer, cocoa powder, chocolate, and sugar confectionary exporters are tested. Two theoretical approaches are employed, the 'pricing of market' (PTM) and the 'residual demand elasticity' (RDE) approach. Even though all markets show a significant violation of the 'law of one price' estimations for monthly data from 1991 to 1998 reveal that markets are in most cases perfectly competitive. However, while in some cases significant market power is indicated for the PTM approach, the RDE results do not support these findings. This leads to the conclusion that the underlying theoretical models fail to consistently match the observed price equilibria on the market under study. --

Market Power of the German Beer Industry on Export Markets - An Empirical Study -

In this paper the existence and magnitude of market power for the German beer exporters is tested. Two theoretical approaches to model incomplete competition on international markets are employed, the ?pricing to market? (PTM) model the ?residual demand elasticity? (RDE) approach. Estimations for both models over the period from 1991 to 1998 reveal incompatible results regarding the underlying theoretical models and with respect to the approach that is used. While significant market power is indicated in the PTM model, the RDE approach signalizes perfect competition. This leads to the conclusion that the underlying theoretical models have to be extended to consistently match the observed market solutions in this case. --

Staggering and Synchronisation of Prices in a Low Inflation Environment: Evidence from German Food Stores

Only a few studies have analysed staggering and synchronisation in pricing behaviour of multi-product firms. These studies used low-frequency data in an environment of high rates of inflation. This paper investigates staggering and synchronisation of weekly prices for ten food products in 131 grocery stores in Germany over the period from May 1995 to December 2000 (296 weeks). Different forms of staggering and synchronisation (across-store synchronisation, within type-of-store synchronisation, within retailer synchronisation or across-product synchronisation) have been analysed. None of these forms of synchronisation is supported empirically however. In contrast, perfect staggering can only be rejected in very few cases indicating that fixed or firm specific menu costs are not major causes for price stickiness. --Food Retail Market,Germany,Pricing Behaviour,Menu Costs

RETAIL SALES: DO THEY MEAN REDUCED EXPENDITURES? GERMAN GROCERY EVIDENCE

Retail pricing strategies incorporate promotions, sales, and rigidities. A number of models have been proposed in particular to explain the occurrence of sales. Focussing on the market for fresh foods the model by Varian and the loss leader argument seem to be intuitively best fitting to the conditions in the fresh food market. From these models we derive several hypotheses that are tested for a unique data set of the German fresh food retail market. The data set consists of weekly prices for ten food items in 131 grocery shops over the period from 1995 to 2000. Following Varian sales should lead to reduced expenditures, while the loss leader argument assumes that consumers are lured into the shop by promotional sales which are covered by higher prices for other products. The results indicate that expenditures decrease with the number of sales in the short run but this effect is outweighed by a dynamic price adjustment thereafter.Food Consumption/Nutrition/Food Safety, Marketing,

FOOD RETAIL SALES (PRICING): THEORY AND EMPIRICAL EVIDENCE FOR GERMAN GROCERY STORES

Retail pricing indicates many phenomena, such as sales or rigidities. A number of models have been proposed in particular to explain the occurrence of sales. Focussing on the market for fresh foods the model by Varian and the loss leader argument seem to be intuitively best fitting to the conditions in the fresh food market. From these models we derive several hypotheses that are tested for a unique data set of the German fresh food retail market The data set consists of weekly prices for ten food items in 131 grocery shops over the period from 1995 to 2000. The results support to some extent the Varian model and also indicate some dynamic loss leader pricing. However, rejections of some hypothesis provide some hints for successive models adjustments. Promising extensions of the theory might be based on the consideration of menu and switching costs.Marketing,

The Impact of Euro Introduction on the Vertical Price Transmission in the German Food Market - Does Money Illusion Matter?

In this paper the impact of the introduction of the Euro on the vertical price transmission in German food markets is analyzed. It is hypothesized that following the introduction of the Euro the presence of money illusion might have lead to higher real prices, and if so it is likely accompanied by higher margins between respective wholesale and retail prices. While other studies have mainly focused on the behavior of average prices, here reactions at the individual store level are investigated. For cucumber and carrots the vertical price relationships between retail and wholesale prices are estimated by employing an error correction approach, which is enhanced to test for structural breaks with a flexible time frame using a F-max approach. The results indicate significant changes in the vertical price relationships for one forth of the retailers under study. Though significant the directions of changes do not uniquely fit the theoretical predictions for money illusion. Thus, the majority of German food retailers has not used the introduction of the Euro to increase their mark ups.Financial Economics, Industrial Organization,

Auction Experiments and Simulations of Milk Quota Exchanges

Since 2000 Germany has a fairly unique market mechanism to trade milk quotas between dairy farms. The two major features are: (1) a quasi auctioning system that produces excess demands which are covered by state reserves free of charge and (2) a price band is used to exclude high price bids. For both features an experimental design is developed to study their impact in comparison to a regular seller’s sealed bid double auction. Results show that both treatments lead to significant misallocations. These are due the direct impact of regulations and due to an imperfect adjustment of bidding functions towards them. The major goal of the market design to reduce quota prices is reached, however, at significant trade losses.Double Auction, Experiment, Milk Quota, Germany, Institutional and Behavioral Economics, Research Methods/ Statistical Methods, L11, D44, Q13,

Auction Experiments and Simulations of Milk Quota Exchanges

Since 2000 Germany has introduced a fairly unique market mechanism to trade milk quotas between dairy farms. The two major features are: (1) a quasi auctioning system that produces excess demands which are covered by state reserves free of charge and (2) a price band that is used to exclude highest bids. For both features an experimental design is developed to study the impact in reference to a regular seller’s sealed bid double auction. Results show that both treatments lead to significant misallocations. These are due to the direct impact of regulations and due to an imperfect adjustment of bidding functions. The major goal of the market design to reduce quota prices is reached, however, at significant trade losses.Livestock Production/Industries,

DOES MONEY ILLUSION MATTER? THE IMPACT OF EURO ON THE VERTICAL TRANSMISSION OF FOOD PRICE IN GERMANY

In this paper the impact of the introduction of the Euro on the vertical price transmission in German food markets is analyzed. It is hypothesized that the presence of money illusion might have lead to higher real prices as a result of the Euro, and if so it must be accompanied with a higher margin between the respective wholesale and retail price. While generally studies focus on the behavior of average prices, in this study the reactions of individual retailers are investigated. For lettuce and chicken the vertical price relationships between retail and wholesale prices are estimated by an error correction approach, which is extended to test for structural breaks with a flexible time frame. The results indicate no impact of the Euro for most of the retail stores. However, about every fifth grocery store did react to the new currency by generally increasing its mark up significantly. This leads to the conclusion that money illusion might have a significant impact on the real adjustment of prices.Marketing,

Price Promotions and Brand Loyalty: Empirical Evidence for the German Breakfast Cereals Market

Price promotions are important marketing activities for (food) retailers; brand loyalty is a major requisite to foster brands' assets. Several theoretical papers have analyzed the relationship between price promotions and brand loyalty resulting in mixed or perhaps contradictory outcomes; only a few empirical studies for (European) grocery markets are available to test which model(s) might be most relevant to reflect pricing strategies in food retailing. In this analysis, two detailed data sets for the German ready-to-eat breakfast cereals market are merged to investigate the relationship between price promotions and brand loyalty. We find significant empirical evidence that stronger brands tend to be promoted less frequently at lower discounts compared to weaker brands. The reason might be that price reductions are more costly for brands having loyal customers who are willing to accept higher mark-ups. Therefore stronger brands might need to come up with alternative measures to recruit new customers instead of offering attractive promotional sales.Price Promotion, Brand Loyalty, Food Retailing, Ready-to-Eat Cereals, Germany, Instruments, Tobit, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety,