Investigating the Pattern of Price Transmission and Market Power in the Sugar Industry of Iran

The asymmetric price transmission can be indicative of market power. In this regard, this study, with the help of a hybrid model, simultaneously analyzed the transfer of prices between the sugar and sugar market and the market, despite the changing market power. For this purpose, seasonal data of required variables during the years 1995-2013 was used. Asymmetric price transmission can indicate market power exerted by production firms. Regarding the issue a mixture model has been applied to analysis the price transmission pattern between processing and retailer markets of sugar while market power is considered as well. For this purpose, seasonal data of required variables during the years 1995-2013 was used. In this study, retailer price of sugar was examined using two regimes which have high conformity with agricultural products that are characterized by mass supply in the harvesting season. Inverse supply elasticity of output was used as market power parameter. Regarding the regime 2 that is more likely to happen, marketing agents in the wholesale market are inclined to transmit increase of prices to retailer market more significantly than decrease of prices. Asymmetric price transmission and market power were confirmed in this regime. In the first regime, market power was higher and had the probability of about 30%, mostly dependent on abundance of supply in the seasons of processing sugar, which is an attempt to increase market power and to create a monopoly in the purchase of agricultural inputs.