Forward Vertical Integration: The Fixed-Proportion Case Revisited

Assuming a fixed-proportion downstream production technology, partial forward integration by an upstream monopolist may be observed whether the monopolist is advantaged or disadvantaged cost-wise relative to fringe firms in the downstream market. Integration need not induce cost-predation and the profits of the fringe may increase. The output price falls and welfare unambiguously rises.

Trade liberalization and inter-provincial dumping in a spatial equilibrium model: the case of the Canadian dairy industry

The paper introduces imperfect competition in a spatial equilibrium model of provincial dairy markets to analyze the welfare impacts of trade liberalization. Our model accounts for output restrictions at the farm level and the potential presence of market power at the processing level. Our model builds on the reciprocal dumping model of Brander and Krugman (1983) because processing firms from different provinces compete with one another in several provinces. Simulations reveal that welfare in the Canadian dairy sector could increase by as much as $1 billion per year if aggressive tariff cuts were made while moderate liberalization plans would yield annual gains of$234.5 million. Even large producing provinces like Quebec and Ontario gain from trade liberalization. In comparison, a perfect competition model yields more modest welfare gains in the range of $15.6 million and$34.5 million. Finally, we show that the switch in the sign of the transport cost-welfare relation identified by Brander and Krugman (1983) occurs at transport costs that are too high to be policy-relevant.Supply management, Canadian dairy sector, imperfect competition, bilateral dumping

Forward Vertical Integration: The Fixed-Proportion Case Revisited

Assuming a fixed-proportion downstream production technology, partial forward integration by an upstream monopolist may be observed whether the monopolist is advantaged or disadvantaged cost-wise relative to fringe firms in the downstream market. Integration need not induce cost predation and the fringe firms’ margin may even increase. The output price falls and welfare unambiguously rises.Vertical integration; cost predation; cost asymmetries

Institutionalized Metzler Effects: Tariff-Rate Quota Liberalization in a Supply-Managed Industry

A supply management system governs Canada’s poultry sector. Tariff Rate Quotas (TRQs), with prohibitive above-quota tariffs and low in-quota tariff, mimic import-quotas limit international competition in Canada’s poultry market. The quota part of the TRQs is a minimum access commitment under international trade agreement that is defined as a fraction of domestic production. We show in a 3-stage game involving negotiations between retailers and processors and between processors and farms that increasing minimum access commitment under current trade agreements can produce Metzler effects with larger price increases observed at the farm and processing levels. Simulations based on 2008 data support the Metzler paradox and shed light on import license allocations between retailers and poultry processors in Canada.Metzler paradox, tariff-rate quotas, chicken, negotiations, Agricultural and Food Policy, Industrial Organization, International Relations/Trade, F13, Q17,

Technical and Environmental efficiencies and Best Management Practices in Agriculture

An input distance function (IDF) is estimated to empirically evaluate and analyze the technical and environmental efficiencies of 210 farms located in the Chaudière watershed (Quebec), where water quality problems are particularly acute because of the production of undesirable outputs that are jointly produced with agricultural products. The true IDF is approximated by a flexible translog functional form estimated using a full information maximum likelihood method. Technical and environmental efficiencies are disaggregated across farms and account for spatial variations. Our results show that there is a significant correlation between technical and environmental efficiencies. The IDF is used to compute the cumulative Malmquist productivity index and the Fisher index. The two indices are used to measure changes in technology, profitability, efficiency, and productivity in response to the adoption of 2 selected best management practices (BMPs) whose objective is to reduce water pollution. We found significant differences across BMPs regarding the direction and the magnitude of their effect on profitability, efficiency and productivity.Environmental efficiency, distance function, phosphorus runoff, productivity, profitability, technical efficiency.

A JOINT TEST OF PRICING-TO-MARKET, MENU COST AND CURRENCY INVOICING

This paper investigates PTM behaviour and currency invoicing decisions of Canadian pork exporters in the presence of menu costs. It is shown that when export prices are negotiated in the exporter's currency, menu costs cause threshold effects in the sense that there are bounds within (outside of) which PTM is not (is) observed. Conversely, PTM is not interrupted by menu costs when export prices are denominated in the importer's currency. The empirical model focuses on pork meat exports from Canada to the U.S. and Japan. Hansen's (2000) threshold estimation procedure is used to jointly test for currency invoicing and PTM in the presence of menu costs. Inference is conducted using bootstrap methods. PTM effects are smaller when accounting for currency invoicing decisions and menu costs than under standard linear models. The data does not reject the null hypothesis that Quebec pork exporters exercise PTM behaviour in the Japanese market and invoice their sales in Japanese currency. Evidence of PTM behaviour and foreign currency invoicing is weak for the U.S. market. Ontario pork exporters do not exercise PTM behaviour in any market.International Relations/Trade,

A Joint Test of Price Discrimination, Menu Cost and Currency Invoicing

This paper investigates price discriminating behaviour and currency invoicing decisions of Canadian pork exporters in the presence of menu costs. It is shown that when export prices are negotiated in the exporter’s currency, menu costs cause threshold effects in the sense that there are bounds within (outside of) which price adjustments are not (are) observed. Conversely, the pass-through is not interrupted by menu costs when export prices are denominated in the importer’s currency. The empirical model focuses on pork meat exports from two Canadian provinces to the U.S. and Japan. Hansen’s (2000) threshold estimation procedure is used to jointly test for currency invoicing and incomplete pass-through in the presence of menu costs. Inference is conducted using the bootstrap with pre-pivoting methods to deal with nuisance parameters. The existence of menu cost is supported by the data in three of the four cases. It also appears that Quebec pork exporters price discriminate and invoice in Japanese yen their exports to Japan. Manitoba exporters also seem to follow the same invoicing strategy, but their ability to increase their profit margin in response to large enough own-currency devaluations is questionable. Our currency invoicing results for sales to the U.S. are consistent with subsets of Canadian firms using either the Canadian or U.S. currency.

Heterogeneous quality in the international trade of wheat

This study analyzes the implications of heterogeneous quality in the international wheat market, and attempts to explain the decline in U.S. wheat exports between 1980-1986. Theoretical models are used to determine the effects of heterogeneous quality on the behavior of importers and exporters. Two approaches are used to model quality. The characteristic approach is used in Chapters Three, Four, and Five. Chapter Six is based on the assumption that importers have a reservation quality level or threshold. The former approach is adequate to investigate the effects of changes in characteristics such as the percentage of foreign material or dockage, while the latter approach better suits the specific nature of characteristics such as protein content;The effects of deterministic changes in quality and of quality uncertainty on consumption and production decisions are analyzed. When importers do not have full information about quality at the time of purchase, they use the reputation of the firm to make their decision. The reputation of the firm is modeled using two approaches. In addition, different types of trade barriers are compared when importers are assumed to have a reservation level of quality

THE IMPACT OF THE CANADA-U.S. HOG/PORK TRADE DISPUTE ON THE COMPOSITION OF U.S. PORK IMPORTS

Trade theorists have demonstrated that different trade policy instruments have different effects on the quality and source of imports. Countervailing duties (CVDs), like specific tariffs, should induce quality upgrading. However, the magnitude and timing of the quality adjustments are influenced by the credibility of the duties that can be legally contested and modified after annual administrative reviews. Index numbers are used to assess the timing and magnitude of the product mix and country mix substitution effects in U.S. pork imports in response to the U.S. CVDs on Canadian exports of live hogs and fresh, chilled, and frozen pork.International Relations/Trade,

Profiling Consumer Trend-setters in the Canadian Healthy-foods Market

The agri-food industry faces new challenges as consumer demand for new, healthier foods increases. Media headlines frequently mention health benefits from certain foods and food components, and consumers are more health conscious because they are aging. They realize their food choices can reduce their risk of developing chronic illnesses such as cancer and heart disease. The competitive advantages for firms who are the first to bring their food innovations to market will depend in part on the efficacy of their marketing strategies. Firms that can identify and target those consumers who are most interested in trying new foods with enhanced functional health properties will likely be the most successful. This paper identifies attitudinal and sociodemographic characteristics that influence a consumer’s desire to be among the first to try innovative functional foods.Consumer/Household Economics, Health Economics and Policy, Marketing,