Another Look at Price Levelling and Price Averaging in the Sydney Meat Market

Abstract

Simultaneous equation techniques are used to re-examine the behaviour of monthly wholesale and retail price spreads for beef, lamb and pork in Sydney over the period 1971-1988, so as to understand the factors determining the relationships between the prices at the different market levels. Hypotheses tested relate to price levelling and price averaging, and to marketing cost and turnover effects. Using the preferred three-stage least squares estimates, price levelling is confirmed at both wholesale and retail for all meats, however contrary to earlier results there is no evidence of price averaging in any of the meats. Costs are only important determinants for beef at wholesale and lamb at retail, and only the beef and lamb wholesale spreads and the lamb retail spread are negatively influenced by turnover. A structural change test reveals significantly different behavioural responses in the 1980s compared to the 1970s, so the model is re-estimated for just the 1980s. The results generally agree with those from the longer sample, with the only change being at the retail level where costs become significant for beef as well as lamb. However the level of explanatory power for the 1980-1988 models is substantially reduced from that of the full sample models.Demand and Price Analysis,