Flower Power at the Dutch Flower Auctions? Application of an Inverse Almost Ideal Demand System

Information on price-quantity relationships will enable flower producers to reduce risk and raise profits through better timing of rotations as well as better utilization of limited greenhouse space. The present paper presents econometric evidence on such price-quantity relationships for major species of cut flowers at the Dutch flower auctions. Specifically, an inverse linear approximate almost ideal demand model with seasonal adjustments is applied. This paper is introducing trigonometric functions as a flexible and inexpensive alternative that outperforms standard seasonal dummies. Major findings are that all flexibilities (quantity elasticities) are strongly significant. Own price flexibilities are negative as expected. The own flexibilities vary substantially across the different species. The estimates indicate different effects from strategic marketing behavior across producers of different species. While some "concerted action" among chrysanthemum producers in terms of supply adjustments may have significant price effects, such behavior for producers of carnations appears to have less impact. Most cross flexibilities are negative, thus, the different cut flowers appear to be quantity-substitutes. Based on the estimated values for price and scale flexibilities, a potential for strategic marketing or market timing seems to exist. Utilizing this information, in given weeks even relatively small producers may be big enough to influence the prices, i.e. there exists a potential for "flower power" at the Dutch Flower Auctions.