Using threshold co-integration to estimate asymmetric price transmission in the Turkish milk market

Abstract

We investigate the price dynamics between retail milk price and raw milk price in the Turkish fluid milk market. The study uses monthly fluid milk prices for 14 years between January 2003 and December 2016. We analyze the price adjustment in the fluid milk market through an asymmetric error correction model with threshold co-integration. We find that the transmission between the two prices has been asymmetric in both the long term and short term period. Differences between the farm milk prices and retail milk prices may exist due to marketing costs across the supply chain and pricing policies associated with the market structure. Results of the long-run analysis indicate a significant market power in the fluid milk market. Therefore, in this asymmetric case, the deviations are likely to be the reason for the market power of the processors/retailers and the reason for the oligopolistic market structure in the sector.