Academic article

Derived demand and relationships between prices at different levels in the value chain: A note

Asche, Frank; Flaaten, Ola; Isaksen, John Roald; Vassdal, Terje

Publication details

Journal: Journal of Agricultural Economics, vol. 53, p. 101–107, 2002

Publisher: Wiley-Blackwell Publishing Inc.

Issue: 1

International Standard Numbers:
Printed: 0021-857X
Electronic: 1477-9552

Open Access: none

Links:
DOI

In this paper we note that when there is only one variable factor in the intermediaries' production technology, prices at different levels in the value chain will move proportionally to each other over time. This is also the only general condition under which the elasticity of price transmission is equal to one, so that retail price signals are perfectly transmitted to primary product producers and vice versa. This allows a test of whether derived demand elasticities contain information about consumer elasticities using only prices. An empirical illustration is provided using data from the Norwegian cod sector.