Progress 09/15/03 to 09/14/06
Outputs This special grant oversees several studies that evaluate the efficiency and performance of the U.S. and global food system. Many of these project are now concluded and articles published. Four were conducted on the U.S. food retailing industry. One study was to evaluate the price effects of supercenters using data from 1992-2005. A second study investigated the Kohls-Copps merger in Madison, WI. Data was collected in 2003 before and after the merger and the same data was collected during the same months in 2005. Similar data in the Green Bay area was collected as a control group. This is a highly unique study of a merger event. Before the merger, Kohls was the second highest priced supermarket in Madison and Copps was third. Also, Kohls' employees operated under a union contract. Both price and promotion behavior was analyzed. Slotting fees, lump sum payments between food manufacturers and retailers, are becoming increasingly common in wholesale supermarket
transactions. Food manufacturers pay these fixed fees to retailers in exchange for allocating shelf space to new products as well as for maintaining existing products on retailer's shelves. Recently, the practice of slotting fees has faced growing criticism by small food manufacturers, who claim the fees to be a flagrant form of rent extraction by large retailers. A completed study shows how imperfectly competitive retailers and a monopolistic supplier of one good can use 'naked' slotting fees--charges imposed on competitive suppliers of other goods--to extract rent in vertically integrated multi-good markets. The role of grocery retailing in the food system is increasingly complex and important as consumer markets continue to evolve from the exchange of agricultural commodities to the sale of highly differentiated food products. A fourth retail study was completed, which examined retailer choices regarding prices and the number of products to stock. Numerous studies were completed on
international markets. A general result drawn from several FSRG studies points to the pro-competitive effects of globalization. Freer trade also has major implications on U.S. foreign direct investment, which was studied. Free trade, however, is not a panacea to solving every competition issue. A study was conducted on the distorting impacts of WTO based special safeguards. Concerns about noncompetitive pricing by state trading agencies was studied. It is clear from these studies and an exhaustive review of the literature that concerns about strategic trade patterns in government export policies are perhaps overstated. A comprehensive analysis of the U.S. cranberry industry was completed. Another study was to investigate the economic implications of storage behavior under imperfect competition. The conceptual analysis is used to specify and estimate a model of storage behavior, with an econometric application to the US American cheese market.
Impacts The supercenter study found that during the rise of the food supercenter industry, food prices did not decline in response to supercenter entry nor in terms of increased market share of supercenters. Additionally, the traditional supermarket industry went through significant period of consolidation as supercenters emerged. Despite probable reductions in costs, food prices rose as a result of the consolidation. It was estimated that an average 4-person family shopping in traditional supermarkets now pays $50-$85 more per year as a result of the consolidation. The study of Copps-Kohls found that did raise prices by about 3%. Regarding the slotting fee study, the anticompetitive effects of such a practice suggest that slotting fees merit careful scrutiny under prevailing anti-trust laws. A study of foreign direct investment showed that the 1992 structural changes under the Maastricht Treaty in the EU increased the probability of wholly-owned FDI modes such as greenfields
and buyouts. We found that past WTO agreements have not gone far enough to encourage competition in many less developed regions and market access exceptions like special safeguards probably soured many nations' views of the WTO process leading, in part, to the current Doha Round stalemate in agriculture. Finally, our empirical results on storage provide statistical evidence of non-competitive storage behavior. They show that the exercise of market power contributes to reduced stock fluctuations and increased price instability in the US cheese market.
Publications
- Chavas, J-P. 2006 ''On Long Run Industry Behavior under Heterogeneous Firms.'' FSRG working paper 2006-05, Department of Agricultural and Applied Economics, University of Wisconsin-Madison.
- Chavas, Jean-Paul and Kwansoo Kim. 2006. ''An Econometric Analysis of the Effects of Market Liberalization on Price Dynamics and Price Volatility.'' Empirical Economics 31(1): 65-82.
- Taya, Shinichi May 2006. ''Evaluating the Rational Addiction Model.'' M.S. Thesis, Advisor, K. Stiegert. University of Wisconsin-Madison.
- Sharkey, T. and K.W. Stiegert. 2006. ''Impacts of Nontraditional Food Retailing Supercenters on Food Price Changes.'' FSRG Monograph Series, #20. Food System Research Group, Madison WI, 78p.
- Richards, T. and S. Hamilton 2006. ''Rivalry in Price and Variety Among U.S, Supermarket Retailers,'' American Journal of Agricultural Economics 88(3): 710-726.
- Jesse, E., and R. Rogers. 2006. ''The Cranberry Industry and Ocean Spray Cooperative: Lessons in Cooperative Governance.'' FSRG monograph 19, Department of Agricultural and Applied Economics, University of Wisconsin-Madison.
- Hamilton, S. and R. Innes. 2006. ''Naked Slotting Fees for Vertical Control in Multi-Product Retail Markets.'' International Journal of Industrial Organization 24(2): 308-18.
- Dong, F., T. Marsh, and K. Stiegert. 2006. ''Product Differentiation and Strategic Behavior in State Trading Enterprises: The International Malting Barley Market.'' American Journal of Agricultural Economics. 88:90-103.
- Reimer, J R. and K. Stiegert. 2006. ''Imperfect Competition and Strategic Trade Theory: Evidence for International Food and Agricultural Markets,'' Journal of Agriculture and Food Industrial Organization 4(1), Article 6. at: http://www.bepress.com/jafio/vol4/iss1/art6 Stiegert, K. A. Ardalan, and T. Marsh. 2006. ''Foreign Market Entry Strategies in the European Union'' Journal of Food Distribution Research. November, 37(3) 44-55.
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Progress 01/01/05 to 12/31/05
Outputs Numerous projects are likely to be completed in this calendar year. One study is a comprehensive evaluation of the trends toward greater market share of food supercenters on U.S. food prices. Preliminary impacts are that, surprisingly, supercenter presence does not lower prices in the tradition supermarket sector. In fact, increased merger activity is shown to be a force in raising the prices of food in supermarkets. A second study has been to test our theories to determine whether or not food firms price products in a manner consistent with the capital asset pricing model. The project used retail scanner data from the butter and margarine sector. The results rejected the model of profit maximization for the model that maximizes the value of firm capital. The results are likely to shake up the way we evaluate oligopoly and oligopsony firm behavior. A third study is underway to evaluate whether or not CEO salaries in the food sector explain in any way the degree of
inefficiency in food firms. Preliminary results indicate food firms are highly efficient and various salaly structures for executives do not explain more or less efficiencies. Investigations are still underway. A fourth study is underway to assess and evaluate the major trends and changes in the dairy sector. A monograph may be complete in this calendar year. A fifth study is just underway to assess and evaluate the international food retailing sector. Authors are being lined up and we hope to provide case studies from several nations across Asia, Europe, North and South America, and Australia. A sixth study is moving slowly to create models to test hypotheses about contracting in the Wisconsin potato sector.
Impacts These studies are expected to provide crucial information for policymakers concerning the competitiveness of the U.S. and global food system. Our first study should shed considerable light on the debate about the role of supercenters in the U.S food system. Our study of the butter market found that firms do not maximize profits, operturning a major tenet of all economic analysis.results rejected the model of profit maximization for the model that maximizes the value of firm capital. The results are likely to shake up the way we evaluate oligopoly and oligopsony firm behavior. The study of CEO salaries is not complete, but preliminary results suggest that excessive salaries are not leading firms to behave inefficiently. This provides an important finding about firm behavior in the food industry.
Publications
- No publications reported this period
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Progress 01/01/04 to 12/31/04
Outputs The project has directed funds to several studies currently in progress. Two studies are underway to evaluate and test the role of addiction in food consumption. One MS thesis and two articles are expected in 2005. Key findings suggest that food and food characteristics (i.e. fat, carbohydrates, proteins, etc.) are generally not addictive. Additionally, past modeling techniques that test for addiction were found to be fragile and led to erroneous conclusions. Another study is designed to evaluate the structure and conduct of metropolitan areas when Wal-mart has retail outlets and when they do not. One MS thesis and one article are expected in 2005. Two studies are underway looking at the factors the determine fast food consumption. One study is nearing completion that evaluates the local merger of Copps Foods Inc and Kohls supermarkets. Preliminary results indicated price increases could be observed in some consumer food product groups. One study to evaluate the role
of State Trading Enterprises and the degree of strategic trade is nearing completion. Results suggest strategic trade is not a burdensome issue.
Impacts These studies are expected to provide crucial information for policymakers concerning the competitiveness of the U.S. food system (retailing, processing, and production).
Publications
- No publications reported this period
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Progress 09/15/03 to 12/31/03
Outputs The project is just underway. several subprojects on food retailing and subprojects on processing, trade, and biotechnology are identified. Data collection and planning stages are in progress. We plan to investigate a number of issues related to food retailing including: obesity and the demand for densely caloric food, market power in retail butter markets, and identifying demand factors for fast food. We are completed multi-year studies on the costs and benefits of public university investments in biotechnology. New studies are to update our research on price cost margins and market power in U.S. food processing sector.
Impacts These studies could provide information for policymakers concerning maintenance and protection of the U. S. food processing sector.
Publications
- No publications reported this period
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