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Abstract

In a competitive market, a rise in output prices at the wholesale level is expected to be passed through to consumers via retailers, Asymmetric price transmission exists when an increase in the producer price moves faster and more completely to consumers than do a reduction in the producer price. The research question is how product heterogeneity and differentiation can affect the price transmission in the carrots markets. Carrots are primarily consumed fresh and are the 7th most consumed fresh vegetable in the U.S. and carrot consumption has been increasing over the past few decades. we investigate price linkage of carrots at terminal and retail levels for two different quality of this product, organic and conventional. According to the VECM model results, the speed of price adjustment in the conventional carrot market is 0.354 in absolute value, while for the organic carrot market is 0.026. This result is an indication of asymmetric price transmission with respect to speed, and shows price adjustment in the organic carrot market is relatively slow pointing to inefficiency in this market. These results have important policy implications, and in case of price shocks, could have differential welfare consequences for consumers and producers

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