Marketing and pricing dynamics in the presence of structural breaks - the Hungarian pork market

The study of marketing margins and price transmission on various commodity markets hasbeen a popular research topic of the past decades (see MEYER, VON CRAMONTAUBADEL,2004, for a recent survey), however with a few exceptions these studiesfocused on developed economies. In this paper we examine the above phenomena on the:Hungarian pork market. The Johansen (maximum likelihood) or Engle and Granger (two step)cointegration tests do not reject the no-cointegration null hypothesis between the Hungarianpork producer and retail price series. Therefore we apply the Gregory and Hansen procedurewith recursively estimated breakpoints and ADF statistics, and found that the prices arecointegrated with a structural break occurring in April 1996. Exogeneity tests reveal thecausality running from producer to retail prices both on long and short run. Homogeneity testsare rejected, suggesting a mark-up pricing strategy. Price transmission modelling suggeststhat, price transmission on the Hungarian pork meat market is symmetric on the long, butasymmetric on the short-run, i.e. processors, wholesalers or retailers might take temporaryadvantage should price changes occur.