Estimating the Degree of Market Integration

Existing tests of spatial market integration are commonly based on statistical criteria without an explicit link to an economic model of price determination. This article proposes new measures of market integration defined directly in terms of a well-known spatial price determination model and develops an econometric methodology for estimating these measures. Due to the intractability of the conditional density function of prices, we use indirect inference to estimate the model parameters and market integration measures. The methodology is illustrated with simulated data and is applied to soybean price data for the United States, Brazil, and the EU. Key words: indirect inference, market integration, price analysis. Spatial dispersion of production and consump-tion leads to a complex set of trade interac-tions among deficit and surplus regions. A large literature has arisen analyzing the patterns of price behavior among different regions and at-tempting to draw conclusions from that behav-ior about the nature of the underlying market. In particular, many analysts have attempted to draw conclusions about the efficiency of markets and the degree of market integration among regions. Measures of the degree of spatial market integration have been used in a variety of contexts. The concept of market integration has been used in defining market boundaries in antitrust cases (see, for example, Horowit