Spatial Asymmetry in Farm-Retail Price Transmission Associated with Fluid Milk Products

Testing for asymmetric price transmission and calculating elasticities of price transmission are of great importance in applied economics. We analyze the behavior of tests for asymmetry according to the conventional Houck approach and to the von Cramon-Taubadel and Loy error correction model (ECM) approach. We also estimate the short-run and long-run elasticities of price transmission between the farm and retail levels of the marketing channel for whole milk and two-percent milk for seven U.S. cities by model. We employ monthly data over the period from January 1994 to October 2002. Empirical results suggest that the farm-retail price transmission process for milk is asymmetric. Price transmission elasticities in conjunction with rising farm prices generally are larger than corresponding elasticities associated with falling farm prices