What can we learn from a sanitary crisis? The ISA virus and market prices

We analyzed whether a competitive market can behave non-competitively when it is temporarily outside of its long-run equilibrium trajectory. Our data sample allowed us to examine the functioning of the Atlantic salmon market in the United States when experiencing a sharp reduction in imports because of a sanitary outbreak that affected its Chilean suppliers. We estimated the Steen and Salvanes extension of the Bresnahan-Lau model. Our results show that in the long run, the market behaves competitively. However, there is evidence of a disequilibrium effect on price in the recovery phase of the crisis. The decrease in the price observed during the recovery was caused by supply overshooting, whereas the increase in salmon's market price observed right after the disease outbreak cannot be attributed to reduced Chilean supply.