Pagoulatos, Emilio

Shonkwiler, John Scott

English

Research Papers in Economics

SOUTHERN  JOURNAL  OF  AGRICULTURAL  ECONOMICS  DECEMBER,  1980
A  MODEL  OF  WEEKLY  PRICE DISCOVERY
FOR  FLORIDA  CELERY:  REPLY
J. Scott Shonkwiler and Emilio Pagoulatos
Nelson Updaw raises several issues concern-  price set by the Exchange,  some celery will be
ing  our  study  of  weekly  price  discovery  for  supplied as long as this price exceeds harvest-
Florida  celery.  His  comments  require  some  ing and marketing costs.  In this case,  we are
clarification  and  correction  so  that  his  criti-  definitely  concerned  with demand  elasticities
cisms can be allayed.  for  periods  of  one  to  two  weeks'  duration
First,  there  appears  to  be  some  confusion  rather  than  long-run  elasticities  (Garber  and
surrounding  the  intraseasonal  (semiweekly)  Klepper).
operation  of the Florida Celery  Exchange and  With  respect  to  specifying  the  weekly  de-
interseasonal  acreage  allotments.  During  the  mand equation,  most of the potential demand
time period of our analysis  (the 1972-1977  sea-  shifters are not available on a weekly basis. Be-
sons)  no  marketing  allotments  were  imposed  cause the series analyzed  in our article corres-
by the Exchange  as Updaw  suggests;  rather,  ponds  to  12 calendar  quarters over a six-year
the Exchange practiced only semiweekly price-  period,  it is highly unlikely that the variation
setting activities,  and acreage allotments were  in the "traditional demand shifters"  would be
applicable on an annual basis only.  great enough to warrant their incorporation  in
Second,  evidence  concerning  the price  elas-  our model. We do agree with Updaw, however,
ticity  of  demand  is  not  the  main  argument  that  some  measure  of  transport/marketing
leading  to  the  conclusion  that  the  Florida  costs  should  be investigated.  Such a  measure
celery  market  approximates  the  results  ob-  is not available to us at this time.
tained under competitive conditions as implied  In  addition,  Updaw  is  incorrect  when  he
by Updaw.  Although this finding does  consti-  argues  that  any  intercorrelation  between
tute  additional  evidence  supporting  our  con-  lagged  California  celery prices  and quantities
tention, our primary argument that the Florida  introduces bias to the estimated  price coeffic-
price  is  near  competitive  levels  is  based  on  ient. Though it is true that a more traditional
similarities  between  the  restricted  (derived)  specification  would  incorporate  only the Cali-
and  unrestricted  reduced  form  equations  for  fornia  price  variable,  the inclusion  of  lagged
the  Florida  price  variable.  The  simultaneous  California supply in the derived demand equa-
equation  model's  reduced  form  explicitly  tion is justified on the basis that it represents
treats price as endogenously determined by the  market share and may indicate the buying pat-
interaction  of  supply  and  demand  as  in  a  terns of middlemen.
competitive market.  In a noncompetitive  mar-  Finally, we take issue with Updaw's  conten-
ket, where supply is not a meaningful concept,  tion  that  stable  prices  are  inconsistent  with
there  exists  a  price-setting  rule  or  equation  competitive levels. That contention is not sup-
which can be estimated in a manner similar to  ported  by  the  econometric  literature.  The
the unrestricted  reduced  form.  Thus,  the  cor-  excellent  discussion  by Wu,  for example,  sug-
respondence  between  the  two  reduced  form  gests that in a dynamic stochastic framework,
equations  suggests  little  divergence  from the  price  setters  may  not  restrict  output  below
competitive model.  competitive  levels while  at the  same time at-
Third,  Updaw  objects  to our  choice  of  the  tempting  to  set  prices  ex  ante.  Specifically,
length  of  observation.  In this  regard,  he  ne-  Wu  (p.  70)  shows that in  situations  of uncer-
glects the critical consideration that celery is a  tainty, stable prices do not necessarily  lead to
perishable  product.  Given that the individual  a misallocation  of  resources.  We  believe  that
firm faces a perfectly elastic demand curve at a  our results suport this conclusion.
REFERENCES
Garber,  Steven and Steven Klepper.  "Administered Prices or Competition Coupled with Errors of
Measurement?" Internat. Econ. Rev. (June 1980):413-35.
J. Scott Shonkwiler is Assistant Professor and Emilio Pagoulatos  is Associate Professor,  Food and Resource Economics Department, University of Florida, Gaines-
163Shonkwiler,  J.  Scott  and Emilio  Pagoulatos.  "A Model  of Weekly  Price  Discovery  for  Florida
Celery."J. Agr. Econ. 12(July 1980):113-18.
Updaw, Nelson J. "A model of Weekly Price Discovery for Florida Celery:  Comment."  S. J. Agr.
Econ. 12(Dec.  1980).
Wu,  S. Y. "An Essay on Monopoly Power and Stable Price Policy."  Amer.  Econ. Rev.  69(March
1979):62-72.

A MODEL OF WEEKLY PRICE DISCOVERY FOR FLORIDA CELERY: REPLY

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