Asymmetric price transmission due to market power in the case of supply shocks

Abstract In this article the market power argument for explaining asymmetric price transmission due to market power in case of supply shocks is examined. Moreover, the potential welfare effects are examined. The analysis is performed using an extension of the Azzam and Schroeter (1995) model comprising both oligopsony and oligopoly instead of just oligopsony. The model is given empirical content using data on the Dutch cucumber chain and assuming Cournot competition among retailers who have market power on either the consumer/retail or growers/retail market or both. The results show that in case of a cucumber supply shock and market power, consumer prices change more than growers' prices. Moreover, total welfare effects of market power are small but potentially large income distribution effects exist. EconLit citations: L130, Q130. © 2003 Wiley Periodicals, Inc. Agribusiness 19: 19–28, 2003.