Imperfect competition and exchange rate pass-through in the international rice market
Yumkella, Kandeh Kolleh
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https://hdl.handle.net/2142/21940
Description
Title
Imperfect competition and exchange rate pass-through in the international rice market
Author(s)
Yumkella, Kandeh Kolleh
Issue Date
1992
Doctoral Committee Chair(s)
Unnevehr, Lorian J.
Department of Study
Agricultural Economics
Discipline
Agricultural Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Agricultural
Language
eng
Abstract
"As a result of the unique segmentation of the international rice market, and the dominance of US and Thailand within certain market segments, a model of monopolistic price discrimination is developed in this study to examine export price adjustment in response to exchange rate fluctuations. The analysis is based on the ""pricing to market"" (PTM) model which postulates that tests for imperfect competition in international trade can be based on the observed pricing decisions of exporters (Krugman 1987, and Knetter 1989 and 1991). A fixed effects, cross-sectional time-series model is developed to determine the degree to which the United States and Thailand engage in noncompetitive pricing of rice for export. Since both countries control over 50% of the total world export of rice in the 1980s, it is hypothesized that they exercise market power by adjusting prices to different export destinations, resulting in a form of price discrimination."
The regression analysis identified market segments within which demand inelasticities and other market imperfections create opportunities for rent seeking conduct. The results suggest that three out of the eight countries had markets that showed evidence of imperfect competition in the form of PTM (Saudi Arabia, for both US and Thai long grain exports, Ivory Coast for US long grain rice, and Canada for US parboil rice), and three out of eight had price discrimination arising from other types of market conduct (EEC and Saudi Arabia for US long grain rice, and Malaysia for Thai long grain rice). However, given that less than 12% of total world rice imports were considered in the study, it was difficult to generalize about how pervasive PTM is in world rice trade.
The study suggests that in the case where exporters treat different countries as separate markets, they will select marketing strategies (or set quantity and prices) for each market separately, and will not rely on market forces or arbitrage to align quantities or prices among markets. Therefore, identifying the various market segments and the extent of price integration is crucial for formulating marketing or pricing strategies, and trade policy.
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