Market Power and Asymmetric Price Transmission in Chile: The case of bovine and porcine meat

This article examines the effect of market power on the price transmission from producer to wholesaler in the Chilean beef and pork industries. Conjectural elasticities were used as a proxy for market power and a Threshold Error Correction Model (TECM) with three regimes was estimated to distinguish price adjustment behavior in relation to long-run equilibrium. The results indicate that market power has a significant impact in the bovine sector when prices are in a decreasing phase. In this phase, bovine wholesalers can exercise market power to slow down the price adjustment downwards and retain higher profit margins for longer. The symmetry hypothesis in the long-run adjustment is rejected in cattle when market power is incorporated and does not reject when it is ignored in the model specification, suggesting asymmetric price transmission between the low and high regimes. This result reinforces the idea that wholesale market power produces asymmetries in the adjustment of prices that are regime-dependent only in the bovine sector.