Updaw, Nelson J.

English

Research Papers in Economics

SOUTHERN  JOURNAL  OF AGRICULTURAL  ECONOMICS  DECEMBER,  1980
A  MODEL  OF WEEKLY  PRICE DISCOVERY
FOR  FLORIDA  CELERY:  COMMENT
Nelson J.  Updaw
In their article entitled, "A Model of Weekly  have been included in the demand model.  Fur-
Price  Discovery  for  Florida  Celery,"  Shonk-  thermore,  changes  in  the  marginal  cost  of
wiler and Pagoulatos provide an analysis of the  transporting  the commodity  to retail  outlets
pricing power of the Florida Celery Exchange,  should also have influenced demand. The inclu-
a marketing cooperative that represents  all of  sion of the dummy variable YEAR in equation
that state's major celery producers.  In their de-  2 (p. 116) undoubtedly captures these effects to
scription of the activities of the Exchange, the  some extent,  but  the  exclusion  of these  vari-
authors cite several factors which indicate that  ables from the demand specification may have
Florida celery producers may have  the ability  altered  the  estimated  price  coefficient
to raise prices above  levels that would prevail  (Kmenta,  ch.  10).  A  more  serious  error,  per-
in a competitive U.S.  celery market.  Such  fac-  haps, may be the inclusion of both the quantity
tors include  a market  share  of approximately  of California celery  sold  in the previous week
40 percent and a marketing allotment program  and  the  price  received.  These  variables  very
which  has  prevented  other  producers  from  likely are correlated, and, if so, have introduced
entering  the industry  since  1965.  Shonkwiler  bias  to  the  estimated  price  coefficient
and Pagoulatos  then proceed  to estimate  the  (Kmenta,  p.  387).  Given  the  demand  model
weekly  demand  faced  by  the  Exchange  and  specification used,  with quantity as the endo-
conclude,  on the basis of the point estimate of  genous  variable,  the  appropriate  explanatory
an own-price elasticity,  that the prices charged  variable that would detect the influence of Cali-
over  the  period  1972-1978  are  inconsistent  fornia marketings on Florida demand would be
with those that would  have been charged by a  the price of California celery.
profit-maximizing monopolist. This conclusion  My second reservation, the effects of the use
leads  them  to  state  that  the  Exchange  is  of weekly  prices  and  quantities  in the  study,
socially  beneficial  because,  they  claim,  it  has  arises from the results of earlier studies which
provided  price  stability  and  market  informa-  indicate that the length of time of adjustment
tion without raising prices much above compe-  affects  estimated  price  elasticities  (Mander-
tition levels.  scheid).  Shonkwiler  and Pagoulatos  explicitly
Without dwelling  on the numerous inconsis-  recognize  this relationship  in their  treatment
tent comments contained in the paper,  such as  of  "interim  elasticities"  in  Table  2  (p.  116).
the alleged ability of the Exchange to stabilize  Their results indicate  that the own-price  elas-
prices while at the same time setting prices at  ticity changes from -0.48 to -0.98 as the length
competitive  levels, I would like to comment on  of adjustment expands from one  week to four
the  analysis  performed  in  the  study.  The  weeks.  This may indicate  that the demand  for
"striking result" reported may well reflect the  Florida celery would have been estimated to be
demand model used, as well as a misinterpreta-  elastic  at  observed  prices  and  quantities  if
tion  of  the empirical  results,  rather than  the  quarterly  or  annual  observations  had  been
market structure for Florida celery.  My objec-  used.  Though there may be nothing inherently
tions  to  the  authors'  conclusions  stem  from  wrong in estimating a weekly demand curve, it
two concerns:  (1) that the demand model may  seems to me that the use of a weekly elasticity
have been misspecified  and  (2) that the use of  estimate for obtaining inferences about market
weekly average prices and quantities in the es-  structure is unacceptable.  I  find it  quite  con-
timation of the demand curve might provide a  ceivable  that  a profit-maximizing  monopolist
biased estimator that would practically ensure  could  operate  in  the  elastic  range  of  the
that the point estimate  of the own-price  elas-  demand curve, as it is usually defined, and still
ticity would be inelastic,  appear  to  face  inelastic  demand  over  a  one-
Because the demand for Florida celery is de-  week period of time.
rived  from  the retail  U.S.  demand  for celery,  The conclusions of the study may yet be sub-
traditional demand shifters, such as changes in  stantiated  upon  the  reestimation  of  the  de-
real income  and  market  population,  ought  to  mand curve or the provision of additional  evi-
Nelson J. Updaw is Assistant Professor, Department of Agricultural Economics, Oklahoma State University.
161dence  by  the  authors.  Other  measures  of  been  charged  by  the  Exchange.  I  would  en-
monopoly power, such as the rate of return on  courage the authors to expand their analysis of
investment in celery production or a compari-  celery marketings in Florida so that the extent
son of celery land values with values of similar  of  monopoly  power  exercised  by  the Florida
land  not  included  in  the  allotment  program,  Celery  Exchange  might  be  more  fully  docu-
may  indicate  that  monopoly  prices  have not  mented.
REFERENCES
Kmenta, J. Elements of  Econometrics. New York:  Macmillan Co.,  1971.
Manderscheid,  L. "Some Observations  on Interpreting Measured Demand Elasticities."  J.  Farm
Econ. 46(1964):128-36.
Shonkwiler,  J. and E. Pagoulatos.  "A Model of Weekly Price Discovery for Florida Celery."  S. J.
Agr. Econ. 12(July,  1980):113-18.
162

A MODEL OF WEEKLY PRICE DISCOVERY FOR FLORIDA CELERY: COMMENT

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics