Abstract

Vertical price transmission analysis measures the speed and the magnitude in which price changes in certain market level are being transmitted to another. As a whole it provides insights on the efficiency of a commodity's market structure, welfare distribution in an industry, as well as the existence of market power among the key players. Despite its importance, there is only one study in the Philippines that focuses on price transmission.

This thesis, therefore, examines the existence of asymmetric price transmission across market levels (farm, wholesale and retail) in the Philippine rice industry. Two econometric models known as the Wolffram-Houck and the VAR models are used in the analysis of recently available price data from 1973 to 2005. To account for the level of government intervention in the market, the data are divided into 2 subperiods representing the period of heavy government control and rice liberalization regime.

In general, the results of this study suggest that price symmetry (in terms of speed and magnitude) exists at all levels of the rice market with or without heavy government intervention. Symmetric price transmission in rice industry can be explained by the longer storage rate of rice and less level of processing involved in rice production. Hence there is no incentive for traders to exercise market power. In addition, farm price accounts for most of the variability in wholesale and retail prices in both of the subperiods. Further, wholesale price explains more of the retail price' variations in the rice liberalization regime than in the period of heavy government control in the industry.