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

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Kjetil Aune

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kjetil.aune@nofima.no

Journal of Agricultural Economics ; Volume 53. p. 101–107. 2002

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

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.

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