AGRICUlrURAL ECONOMICS RESEARCH VOL. 22, NO. I, JANUARY 1970

Pricing Systems and Agricultural Marketing Research

By George B. Rogers

Both Irwin (20)1 and Breimyer (4) have re­ industries. Such discussions do not provide cently labeled pricing a a central and majorprob­ comprehensive framework for classifying lem in agricultural pric­ marketing. Prices have a ing systems, but they furnish fundamental details useful in role in both long-run and short-run developing a classification. decision making at all levels in an industry. In Bain indicated that in most markets sellers the long run, prices should optimize resource approach price-output problems by calculating aUocation and consumer satisfaction. In the and announcing selling prices. and that the short run, they should facilitate trading and the alternative policy of determining output and orderly and timely movement of goods from "letting price take care of itself" producers to ultimate users. is found usually only in industries ofrelatively atomistic " , Prices are generated by a pricing system. structure. There. the individual seller faces a Within such a system, the process of price well-publicized going market price for making is hardly passive all in­ but involves deliberate dustry output, which may resultfrom procedures effort. Moreover. the general type of pricing such as the operation of a highly organized system in operation, its individual character­ central market or the domination of the market istics, and the conduct of active participants in by a few large buyers who simply determine the system, all influence its performance. and announce a fixed buying price. ExampleB This article delineates a framework for ex­ cited were mainly extractive industries like amining pricing systems. It suggests a general those in agriculture, lumbering, and crude classification of pricing systems, describes petroleum production (2, p. 269-270). some pertinent characteristics, and lists some Clark divided pricemaking into three main measures of performance in such systems. It types and a larger number of special types, summarizes the current pricing systems for The three main types were (1) supply-and­ selected agricultural commodities and suggests demand pricing, (2) the quoted price. and (3) the some research problems which might command negotiated price. Special forms and hybrids the attention of agricultural economists. included remainder and disposal sales, sales Pricing systems have received less attention of secondhand goods, auctions, buying on sealed than many other areas of agricultural market­ bids. negotiated departures from sellers' quoted ing research. A better understanding of the prices, and quoted or negotiated prices subject nature of pricing systems and their problems to revision under specific contingencies. Supply­ might stimulate more specific research on agri­ and-demand pricing was held to be most clearly cultural priCing systems and facilitate orderly seen on organized exchanges. Under the improvements in pricing. quoted price system. the seller offers a price at which he expects to fill whatever orders come. The Classifying Pricing Systems two main forms of negotiated prices wereillus­ trated by the real estate market and collective Various authors have discussed pric!ng prac­ bargaining by organized labor (6. p. 108-110). tices, techniques, objectives. or poliCies, and Macklin listed threegeneral methods ofprice­ pointed out examples applicable in particular making in agriculture: (1) calculation, (2) or­ ganized speculation, and (3) hit-or-miss guess­ 1 Underscored numbers in parentheses indicate items ing or chance juggUng of market forces. With in the Selected References. p. 10. sufficiently complete information on both supply

1

{/ and demand conditions, an integrated marketing and to differentiate them from those of its concern could calculate relatively stable prices competitors. This practice is characteristic that would both guarantee buyers against de­ of multiproduct firms and, in the study in qUt;lS­ clining or violently fluctuating prices and pro­ tion, particularly of large food chainstores. mote sales and competition. With many firms The environment is clearly an "imperfect" one, involved in a complex marketing system,; "or­ differing from both perfect competition in the ganized speculation is preferable to prices abstract and tightly knit oligopoly or monopoly based on pure guessing." But with uncertainty (28, p. 4-5, 103). eXisting, "the judgments of many are safer and -Hawkins discussed various kinds of "market less speculative than the judgments of only a pricing policies" he held to be special cases of few" (23, p. 325-331). the general theory of monopolistic competition. Nourse classified pricing mechanisms into These were "odd prices," "psychological pric­ three types: (1) "authoritarian," (2) "admin­ ing," "customary prices," "pricing at the mar­ istered," and (3) "automatic." Examples of the ket," "prestige pricing," "price lining," "resale "authoritarian" form included public utility price maintenance," "quantity discounts," and regulation, railroad rate control, the Guffey "geographic pricing" (18, p. 233-240). One could coal acts, and both Federal and State milk con­ add such terms as f.o.b. basing point pricing, trols. (One could also include wartime price delivered prices for certain zones, or destina­ controls.) "Administered" pricing included the tion prices less transportation and handling major part of modern industrial life, with its charges. In the context of this article, few of large corporate producers, chainstores, trade these are policies or goals. Many are methods, associations, collective bargaining unions, and customs, or simplifying techniques. Some could cooperative organizations. The "automatic" type be used under several competitive structures. covered the simple, natu!1al, flexible kind of Table 1 classifies pricing systems with com­ prices emerging spontaneously in free markets petitive situations varying from monopoly to­ patronized by individual, unorganized producers ward atomistic competitinn. The main types of and buyers (29, p. 9-21). Many agricultural systems, some of the methods or aids to es­ products havetraditionally been classified under tablishing prices, and some possible pricing the "automatic" type.­ goals and policies are specified. Nourse's classification is a broad and par­ ticularly useful one. Yet the term "automatic" is somewhat misleading, since pricing is not Characteristics of Pricing Systems an effortless and unstructured process even under approximations of pure or atomistic com­ Pricing systems have definable character­ petition. istics. Some characteristics are common to all Pricing at retail is basically administrative, pricing systems. Other characteristics are since retailing fits into monopolistic competi­ peculiar to particular industries. tion theory. Yet retail pricing is a somewhat The general type of pricing system which special case, particularly in chainstores han­ prevails is closely related to the competitive dling' thousands of items. Preston indicated that structure of the industry (table 1). In this con­ (1) retail prices are often set according to es­ nection the most relevant measure is the ex­ tablished markups over invoice costs, but tent of concentration of firms, typically meas­ (2) these markups are not generally uniform ured by the number and size of units. among products or items and are varied on in­ DifferenWited priCing is a feature affected dividual items from time to time based on by both prevailing competitive structure and merchandiSing decisions and in response to individual industry characteristics. A high de­ local competitive pressures (30, p. I, 40, 68). gree of price differentiation is likely in com­ Nelson and Preston subsequently labeled as petitive structures from monopoly through "variable-price merchandising" the simultane­ monopolistic competition, except possibly in ous and sequential manipulation of selected some basic extractive and processing industries. prices upward and downward in order to draw In general, the higher the degree of processing attention to the market offerings of the firm or the more complex the manufacturing, the

2 Table l.--A general classification of pricing systems 1

Compei;itive structure Type of Rep~esentative methods (from less pricing Some pricing goals or aids in establishing and policies 2 to more system prices competitive in type)

Public Authori­ Boards, comittees, public or Rate of return on investment. monopoly tarian quasi-public agencies (an­ Discriminatory (classified). nounced and/or approved lists) , Foreign trade policies. Govern­ Governmental agreements, ment price support. negotiation.

Private Authori­ Committees, individuals (an­ Profit maximiz.:l.tion. Target monopoly tarian nnunced or private lists, or rate of return. Perpetuation. individually quoted) • Discriminatory (differentia­ tion) •

Oligopoly Administered Committees, individuals, trade Status quo, or change market associations, agreements among shares. Predatory price-cutting. participants, price leadership Profit maximization. Target rate (announced or private lists, of return. Sales maximi~ation. or individually quoted). Discriminatory (differentia­ tion).

Monopolistic Administered Committee, price maker or customary markups. Variable competition merchandising manager, trade price merchandising. Meet local organization, manufacturer's competition. suggested prices, negotiation.

Atomistic IIAutomatic,1I Terminal markets, country Make the best deal you can or competition free, or point b11ying, exchanges, base take the going market value as open market quotations, auctions, commit­ established by someone else. tees, contracts, buyer an­ ! nouncements, negotiation. i

lApplies only where facilitating exchange of goods is intended objective. Futures markets are thus excluded, although trading results can contribute to cash market price determination. 2 These represent possible courses of conduct open to firms or groups of firms.

greater the likelihood of widespread differenti­ activities which depart from basic levels through ation of prices along product lines. In the public the appUcation of premiums, discounts, and monopoly grouping and to some extent in the other adjustments. But it is characteristic in private monopoly grouping, price differentiation each industry that one level of trading is of key by type of buyer may be more likely. Where the importance in the determination of basic price degree of pure or atomistic competition is high, levels. price differentiation is not likely to be too sig­ Price followers, as well as basic p ric e nificant. In the context of this discussion, gen­ makers, may use basic values for a few grades, erally used or recognized grades and standards sizes, geographic locations, trading levelS, and do not constitute meaningful differentiation in qwmtities and terms of sale to determine prices terms of pricing systems. for other grades, sizes, geographic locations, Pricing systems encompass both the deter­ trading levels, and quantities and terms of sale. mination of basic price levels and translation Usually such prices are determined by applying

3 premiums or discounts renegotiatedor redeter­ of achieving an equilibrium rapidly mined only infrequently by confining and/or on the basis of dealings over price to persons who longer run are shrewd changes in costs, rates, and tech­ and well-informed (34, niques. p. 149), and Macklin's claim that the judgments of many are The basic safer and price level tends to be established less speculative than the judgments at a level of of only a manufacturing, processing, or dis­ few (~, p. 331). tribution where the product has reached a form Both imperfect market essentially knowledge and the like that in which it will reach the costs of performing ultimate pricing services lead to­ consumer or user. Some examples ward few participants might in establishingbasic price be the manufacturing of automobiles, levels. furniture, clothing, steel products, or appli­ The degree of knowledge about ances, the factors and canning or freezing of foods, or the forces relating to price determination proceSSing of is vari­ broilers from live to ready-to­ able from industry to industry, cook form. but it is fre­ quently not great in total nor very evenly dis­ For many other agricultural products, the tributed among partiCipating firms or their key trading level may be the level of sale to members. Attempts to improve knowledge in­ wholesalers, processors, or retail buyers. clude the market intelligence systems of pri­ Producer prices are often determined by.dis­ vate firms, and private and public statistical, counting from such levels. Many retail prices research, and market news services. But these may be determined by markups over cost, in­ may still leave room for the exercise of much cluding "fair trade prices" or "manufacturer's subjective judgment. suggested retail prices." On the other hand, re­ Even in industries which lire highly concen­ tail prices and margins often reflect local trated, where entry is severely limited and compet;.tive conditions and variable pricing products highly differentiated, the promulgator poliCies, including the use of food items as ad­ of announced prices may have to do considerable vertised or unadvertised specials. guessing about the relative demands for his Typically, only a few participate in the process competitors. His predetermined output canstill, of determining basic pi-ice levels, irrespective in practice, be too large or too small. of the prevailing competitive This structure. leads to attempts to control market conditions. It is easy to visualize this characteristic in Galbraith emphasized that industrial planning industries where concentration ratios are high. requires more control overprices since modern In industrial and service sectors. price making technology reduces the reliability ofthe market. readily becomes a speCialized function, because Thus, to minimize the risk of loss and damage speciaEzation follows with scale or because to the technostructure, and to maximize firm there is often a vast number of items to be growth, both production planning and priced. In other manage­ instances, the basic price ment of demand to assure a market making are practiced role also is delegated, but largely for (l5, P. 189-219). other reasons. Uncertainties about demand are likely to be Even where competition is relatively atom­ greater in those industries which are less con­ istic, many potential participants terid to be centrated, where entry is relatively unlimited, effectively excluded because they do not possess and products ar~ generally undifferentiated. In enough market information or expertise to par­ addition, there a~a more.uncertainties about the ticipate, because being price followers enables forthcomi.ng supply ~ since output is not con­ them to concentrate on operational, assembling, trolled by a few, but results from largely inde­ and distributive functions, or even because they pendent decisions by many. Various measures cannot readily gain entrance to key institutions. are often used to seek some degree of stability Direct partiCipation in the process ofdetermin­ in prices or volumes. Inagriculture, approaches ing basic price levels may thus be limited to a used include Government support price and small fraction of those actually buying and sell­ purchase .programs, cooperative development, ing. The optimum number lies somewhere be­ marketing orders and agreements, and volun­ tween Taussig's emphasis on the desirability tary regulation of volume. Support is also likely

4 for policies directed toward full employment and Evaluating Performance of high-level overall economic activity, and for Pricing Systems publicly sponsored market news programs. Price determination is a service to an in­ Pricing systems can be evaluated at least dustry and involves costs. Irwin, in calling subjectively. Subjective evaluation certainly wholesale pricing a service performed by col­ leaves much room for argument. But, given the lective action of handlers who evaluate available current knowledge of struc~ure, condu.ct, and information using statistical analysiS, intuition, performance, quantification is difficult and can and training, indicates that cost appears as part only be approached through detailed analysis. of the gross profits of handlers (20). There are Terms such as the following can be employed other privat~ and public costs which might also in subjective evaluation: fair, equitable, just, be enumerated. Shepherd described the evolution or reasonable; efficient or least cost; relilistic, of t~,~, price-making process in agriculture as workable, representative, oroperable; sensitive one of both reducing the time and energy spent or flexible; and, stable or orderly. Many of or wasted in price determination and of in­ these points are interrelated and often in partial creasing the accuracy of the prices (32, p. 53­ conflict. Hence, a composite score for per­ 55). Thus, minimization of the industry and formance may not include the highest values for public resources required may support delega­ individual points, but rather represent a com­ tion of baSic price level determination into few promise among various criteria. hands. Today terms such as "fair" and "equitable" Many pricing systems for raw oragricultural are in common use. Pricing has long been sur­ products are effective only within certain limits. rounded by such ethical connotations, whether Such systems may cease to apply when the expressed as customs, moral standards, edicts, product is processed into a substantially dif­ or laws. "Just price" traces to early economic ferent form or when the original product is thought. In today's economy, legislative au­ combined with other ingredients. For example, thority, executive persuasion, and regulatory many animal products or crops lose their practice focus on preventing monopolistic and original identity before they reach the ultimate oligopolisUc abuses, price discrimination, in­ user and prices determined on the raw or farm flal:ionary increases, unfair practices, and mal­ form have little or no Significant effecton final distribution of income. product prices. The extent of linkage or inter­ Even where conditions of atomistic competi­ relationships between pricing methods on the tion are approached, pricing systems are not raw or unprocessed form and the processed or above criticism. For example, Galbraith's manufactured products varies from one industry theory of countervailing power (14) and the more to another. recent resurgence of interest iri'farmers' bar­ Some pricing systems produce values which gaining power suggest that imperfections in are effective only in the current period. Others pricing exist from the standpoint of equity and produce values which apply infuture timeperiods other similar terms. of varying length. Where exchange trading, The efficiency of pricing systems can be terminal market pricing, ordecentralized nego­ viewed in several dimensions. tiations are involved, the current periodis often Hague has recently defined an efficient pric­ only a day or so in length. Future values may ing system in a classical sense. Factors in­ be intended for a week. month, crop year, or clude producing the right amounts of the right manufacturing year, and tend to hold unless un­ goods, optimum cost levels, correct resource anticipated events force a change. In general, allocation, rapid distribution, and guidance for prices in less competitive industries tend to be both the short and the long run (16, p. 3-15). futuristic and those in more highly competitive Stigler's discussion of the primary require­ industries current. But there are enough ex­ ments for an efficient market suggests a less ceptions so that this feature tends to be an rigorous role for price. Full knowledge, by individual characteristic of pricing systems. itself sufficient for an efficient market, is not

"" 5 realistically attainable in the absenGe of stand­ centralized markets, and finally ardization to a pricecom­ of goods and 10calizatiQ:il of trans­ mittee system (32, P. 53-55). actions. In bringing buyers and sellars together Some evidence exists that progression of to exchange goods and money, a rnarket is ef­ method does occur, even though each industry ficient if purchases can be made at the lowest may not need to pass through each one of these price offered by any supplier and salea can be exact stages. Some evolution within methods made at the highest price any buyer 1s paying has also occurred. For example, negotiation (33, P. 55-56). may evolve from barter on each transaction to Thus, under competitive con~ationB (which are infrequent negotiation between a few partici~ imperfect in varying degrees/, l ew:ciency may pants representing large quantities. be acceptable Progres­ if the pricing! sys~~m produces sion in systems may also have values within occurred where some reasonabJ,e range. Within this industries have moved from range. more toward less various factors, such as bargainingpower competitive structures. and knowledge, influence the exact level deter­ But even though pricing systems mined. and methods are modified with the passage of time, pricing Efficiency may also be relatf~d to the costand systems are resistant to very rapid change. time dimensions of pricing. As previously noted, Members ofa particularindustry become trained the determination ofprirtes involves an economic In and accustomed to a particular mode ofoper­ cost. and costs are both direct and indirect. ation, and key institutions become Thus, from thestandpoint well­ oftechnical efficiency, establiShed. When structural and competitive it may appear desirable for a limited numberof changes occur very rapidly in a particular in­ participants to develop a hip;h degree ofexpertise dustry, it is quite likely that the pricing system and determine basi'':: values which arethen widely will change far less rapidly. Thus, pricing sys­ used by others in the industry. But specialization tems need periOdic reevaluation since relative of this function should not he carried to the ex­ performance can decline significantly in a few tent that it widen~1 t.he opportunities for individual years. Hence, in a dynamic dimension, gain through price manipulation. sub­ stantial cumulative changes in an industry At a particular cause point in time, there may be problems with a pricing system several and require pricing mechanisms which could be drastic changes or even workable· the development of an for fa particular commodity or indus­ entirely new approach. try. Apricingsystem which is carrentlyoperable To what extent do prices actually need to be or technically feasible neither implies nor re­ sensitive or flexible in order to reflect changes quires perfect knowledge on the partofall active in supply and demand? Are there possiblebene­ participants. Ifknowledge Is imperfect theremay fits which might accrue if prices were more not be a perfect set of short-run equilibrium stable or pricing more "orderly"? Most dis­ prices, but there may be alternativesets ofpos_ cussions note that prices of some commodities sible values which could "clear the market" in are more variable than those for other com­ linked time periods. The operative pricirig sys­ modities. The distinction has often been drawn tem may do the best it can with incomplete between prices o~ agricultural and certainother knowledge and subjective judgment, limitedpar­ basic commodities and all other prices. ticipation in price determination, and the time Mason, discussing an upswing in prices in the available to arrive at some basis of trading in 1. 950's, indicated that grains. poultry and dairy order to get on with the jobof physically moving products, textile fabrics, lumber, and other the product to retailers, consumers, institutional items produced in competitive markets led the users, exporters, etc. The end result can be upswing. With morestability in industrialprices, prices which are usable, but improvable. the dynamic elements in the price system were Another problem arises in regard to how rep­ mainly wages and the prices of goods produced resentative a pricing system may be ofindustry in the small enterprise sector of the economy structure and practices. (26, P. 170-172). Shepherd has suggested that pricing methods -in a general article on agriculture, Knight, in agriculture progress in from bargainingon each the volume edited by Adams, suggested transaction to centralized com­ markets, then to de- mercialization in farming may have produced 6 accelerated price effects in the same directions fore in judging the need for price flexibility, we as the general price levels. He also discussed should identify the causes ofvariations in prices the volatile nature of agricultural prices in the emanating from the present system. Automat­ i! short run. Here, on "free markets," prices ically attaching precision to today's values in change frequently and in small increments, clearing the market, as determined by today 1s sometimes within each day. Small changes in pricing system, will preclude any consideration supply and demand and "••• a host of dynamic of other sets of values or alternative pricing facts and fancies daily assert their influence systems. It would also eliminate any benefits without moderation•••" (1, p. 10-14). from more sta.ble prices such as more orderly During the past two decades, positive Govern­ movement of the product, from improved equity ment actions of various kinds to help stabilize considerations, or from greater confidence in the economy have been increasingin number and the reliability of the pricing system. frequency. Heller suggested that developing public policies resulted in the virtual disap­ Pricing Systems in Agriculture pearance of the countercyclical syndrome ofthe and Research Problems 1950's and that some progress had been made by the mid-1960's in approaching the four ob­ Pricing systems for agricultural products are jectives of full employment, high growth, price diverse. They :range across the continuum from stability, and balance-of-payments equilibrium free market to authoritarian types. Table 2 (19, preface, p. 59-60, 116). illustrates this diversity for several commod­ Over time, more long-run price stability has ities, as indicated by selected publications (17, been achieved for" some agricultural commod­ 24, 27, 31, 35). Just as pricing systems are ities. Likewise, various programs and the use of diverse, so, too, are the types and scopes of particular pricing mechanisms have resulted in problems which can merit research attention. more short-run price stability for some agri­ In agriculture, for example, the growth of cultural commodities. But for others, short-run integration has had impacts on pricing. Farris price instability is still evident. (10, p. 2) indicated that "••• an adverse side Taussig many years ago discounted the pre­ effect of integration may be to impede pricing cision of short-run equilibrium prices and sug­ efficiency by reducing the fraction of total gested price variability might even impede supply of a commodity whicll enters into mar­ product flow. He said that even on a single day ket price formation." there is no one price rigidly settlec' by the Br~myer (4, p. 97-105) suggested vertical equilibrium of supply and demand. With 1\ •• the integration tends to substitute internal admin­ wavering doings of human beings •••II lind un­ istrative controJs at some stages of production certainties about supply and the conditions of and marketing for the price system. For ex­ consumption and def;?lnnd, differences of opinion ample, linking stages by integration may result are likely and prices are not mathematical cer­ in ownership of farming resources by the mar­ tainties, but statements of tendencies. Fluctua­ keting firm or contract production, where pro­ tions are likely, but with speculation, knowledge, ducer returns are determined by negotiation, and large-scale dealings, the seasonal price formula prices, or piece-rate payments. He also will be more quickly and smoothly determined suggested some adverse effects from imperfect and maintained between narrow limits. For the central market pricing mechanisms because of ultimate consumer, the early and exact ad,iust­ the decline in central wholesale markets, the ment of price brings more even utilization of rise in direct selling, and the growing practice the available supply (34, p. 148-149, 159-160). of trading on someone else's price. First, as We can have short-run price fluctuations actual negotiation becomes small, i~ r: ~n become arising from several causes: (1) accurate re­ unrepresentative and invite manipiJation. Sec­ sponse to changes in supply and demand, ond, when only small quanti~ies of uncommitted (2) overreactions due to incomplete knowledg~ supplies are traded, a given price level can or the nature of participation in price making, prevail too long, then overadjust when changes and (3) incompatibility of the pricing mechanisnl take place, giving rise to erratic price move­ with the current nature of the industry. There­ ments. Examples cited of the use of a published

7 Table 2.--Summary of pricing systems for selected agricultural products

General type Basic price Methods of determining Commodity of pricing level other prices system determination

Eggs Free market. Daily base price quotat~vns Premiums, discounts to other in a few wholesale markets. trading levels, grades & sizes, In Ne~ York & Chicago sup­ quantities, & geographical ported by cash exchange trad­ locations. Some producer l'e­ ing. turns under contracts not related to short-run price changes.

Broilers Free market. Prices paid by large retailers Premiums, discounts to other for ready-to-cook broilers, trading levels, quantities, & selected cities, for future geographical locations. Periodic deliveries. specialing at retail. Most pro­ ducer returns under contracts related to performance stand­ ards.

Fluid milk Authoritar­ Formula or negotiation under Some negotiation on differen­ ian to de­ Federal-State orders, generally tials but many wholesale and termine a pooled price to producers retail prices specified under minimum based on claSSified pricing orders. levels. for various end uses.

Butter Free market Quotations based on cash ex­ Averaged differentials for loca­ with Govern­ change trading at Chicago & tion & grade at country plants ment price New York by primary receivers & also to cover margins for supports & central market wholesalers. services in selling to whole­ providing salers & retailers. a floor.

Natural Free market Prices established on Wis­ Assembly point prices tend to cheese with Govern­ consin Cheese Exchange in follow the exchange. Processed ment price Friday trading by plants & cheese prices become adminis­ supports processors the primary indi­ tered type. providing cator. a floor.

Live meat Free market. Decentralized negotiations Reflections to and from dressed animals at auctions, country plants, meat prices. or terminal market values.

Dressed meat Free market. Daily commercial quotation Formula pricing to buyers. at Chicago. quoted price lists, or negotia­ t:l,ons. Variable price merchan­ dising at retail with periodic specialing of cuts. Continued B

'j ;J Table 2.--Summary of pricing systems for selected agricultural products--Continued General type Commodity I Basic price of pricing system I level Methods of determining determination other prices

Further proc­ Administered. Manufacturer's essed poul­ list pI-ices, with Retail markups. try products adjustments for Negotiated or deliVery, volume, market price branded vs. un­ to slaughtering branded. plants for poultry, Cotton Free market Series of central with Govern­ market Application committees, under specific of differentials ment price legislative for location. supports authority, issue grade, etc. price quotations Becomes manufactured providing at central in products a market level. use and original identity floor. largely lost in pricing con­ Tobacco sumer items. Free market. Warehouse acutions held for Becomes several weeks or months manufactured products harvest after in use & original and curing where pro­ identity ducer's largely lost in tobacco is sold to pricing con­ tobacco companies. sumer items. Sugar Authorital'­ Sugar Act minimum ian with prices for Plus raw sugar at distributor & retail minimum processor level. margins over refined sugar prices & prices which are under basing quotas deter­ point system. mined Beet and cane under growers paid contract Sugar Act. price largely reflected from sugar raw price. Sugar for processors food loses identity in Many marketing. fresh Free market. fruits Auction, shipping and point, or Differentials vegetables terminal market from shipping sales to pOint receivers or price or pool price retailers. grower, to from ',\;erminal market values to shipping firms. Dis­ tributor & retail margins likely to Many vege­ vary seasonally, etc. Free market. Mainly tables for contract prices ween bet­ Contract prices: canning or producer &packer may be affeci;ed mined deter­ before & during freezing in advance of planting harvest seasons or harvest. by fresh market These have fairly prices. Canned close relationship & frozen food prices to selling istered are admin­ prices of packers. and/or determined by broker or direct sales tributors, to dis­ inst1'tutions, and Wheat retailers. Free market Terminal with market price quota­ Govern­ tions supported Application of ment by cash & differentials price futures trading for geographical location, supports by couLL'try trading elevators & termir~l level. etc. Becomes providing a market manufactured firms. products in use floor. with identity largely lost in pricing consumer items somewhat but reflected in animal feeds.

9 price quotation with premiums and discounts P. 93-95). This suggests that in-depth studies were the Natior-al Provisioner Yellow Sheet for Livestock (meat) and the Urner-Barry egg may be required to find an optimum solution for each commodity. price. He contended central market trading is not essential to a good pricingsystem. Remedies On eggs, problems With the long-entrenched suggested for agricultural pricing problems in­ pricing system reached the point where Con­ gress authorized a large-scale program of re­ cluded making improvements in traditional mar­ ket pricing, continued USe of price supports as search to help find solUtions. A recent report (31) analyzed the present pricing systems, pos­ protp.ctive floor prices, bargainingassociations, committee pricing, classified order priCing, sible improvements, and alternatlve systems and limitations on integration. and methods. Based on this report and related stUdies, a committee representing all segments Integration illustrates a POssible separation of the basis for producer return from current of the egg industry was formed to develop a plan market price levelS, giving rise to possible for improving the egg pricing system. Although equity problems of conSiderable magnitude. this is the most recent exampleofa comprehen­ sive stUdy, priCing systems in other commodity Eggs and meat are examples of growing incom­ patibility of central market pricing mechanisms areas could eventually merit similar attention. with current structures and practices. Volumes traded on butter exchanges are even smaller today than in the early 1950's. and only Selected References a few large firms participate in exchange trading 1 (27(c), P. 284-285). Due to the lack of any other ( ) Adams, Walter. The structure of American system for comparison, the question of whether industry. The Macmillan Co., New York, 3d ed., 1961. spot market tradeprices afford the best estimate of prices which move all butter through market (2) Bain, J. S. Industrial organization. John channels is difficult to answer (17, P. 24). Term­ Wiley and Sons, Inc., New York, 1959. (3) Bazelon, D. T. The paper economy. Vint­ inal market prices on wheat become less rep­ resentative as more wheat shifts from terminal age Books, A Division of Random House, New York, 1959, 1962, 1963. to sllbterminal markets. If this trend continues. (4) Breimyer, H. F. Marketing aspects of it would become appropriate to reevaluate the usefulness of the present terminal price-quoting farm policy. In Natl. Adv. Cornm. on system (35, p. 223). The examples on butter and Food and Fiber Tech. Papers, Vol. V., August 1967. wheat suggest a need to study modifications in the present system or alternative systems. (5) Caves, Richard. American industry: Under provisions of specific legislation, the structure, conduct, performance. Pren­ tice-Hall, Inc., Englewood CliffS, N.J•• Secretary of Agriculture has labeled IS central 1964. markets as "deSignated spot cotton markets." (6) Clark, J. M. Competition as a dynamic The designated markets were reviewed in 1951­ process. The BrOOkings Institution, 52 and again in 1959-60 for their suitability as Washington, 1961. major sources of price information (35, p.119). (7) Commons, J. R. The economics of collec­ Continued reexamination of pricing systems at tive aci:ion. The Macmillan Co., New periodic intervals may be warranted to keep York, 1950. them updated. (8) Darrah, L. B., O. D. Forker, and R. L. On fruits and vegetables, price-making takes different forms in different institutional environ­ Miller. New York Mercantile Exchange egg prices and Urner-Barry egg quota­ ments. Each of the major types of environ­ ments has different characteristics and yields tions. Cornell Univ. Agr. Expt. Sta., BuI. 1021, May 1968. somewhat different results. For example, the timing of price changes is different, and the (9) Faber. F. L. Present and alternative meth­ pricing system in some markets makes them ods of pricing eggs. U.S. Depl,. Agr., ERS-275, February 1966. more sensitive than some others to small (10) FarriS, P. L. Social and political implica­ changes in supply and demand factors (24, tions of integration. Paper, 18th Ann. 10 --,~- .... ~-,...., f,<"~" ~""""",, ••,,."-" ~..._ .... ~ ~.,'_ ...._~,~~ ,...... , ",.,_.~ ___ ~ .• ~_

Conf" Nat!. Inst. Animal Agr., April 8, (27) National Commission on Food Marketing: 1968. (a) Organization and competition in the (i,l) Forker, 0. D., and B. A. Anderson. An livestock and meat industry. Tech. Study i economic evaluation of methods used '" No. I, June 1966. ,\ under Marketing Order legislation. Cor­ (b) Organization and competition in the -r:eti Agi. Expt. Sta., A.E.Res. 216, April poultry and egg industries. Tech. Study 1967. No, 2, June 1966. (12) Forker} ,0. D., and Bu A. Anderson. An (c) Organization and competition in the annotlil:ted bibliography on price discrimi­ dairy industry. Tech. Study No, 3, June 1966. nationi; Cornell Agr. Expt. Sta., A.E.Res. (d) Organization and competition in the 241, Jiebruary 1968. fruit and vegetable industry. Tech. Study (13) Galbraith, J. K. A theory of price control. No.4, June 1966. Harvard Univ. Press, Cambridge, Mass., (e) Organization and cumpetition in the 1952. milling an'" baking industries. Tech. Study . ! (14) Galbraith, J. K. American capitalism. No.5, June,1966. Houghton Mifflin Co., Sentry Ed., Boston; (f) Studies oforganization and competition 1962. in grocery manufacturing. Tech. Study No. (15) Galbraith, J. K. The new industrial state. 6, .,J:,me 1966. Houghton Mifflin Co., Boston, 1967. fig) Organization and competitlon in food (16) Hague, D. C. Price formation in various retailing. Tech. Study No.7, June 1?66. economics. The Macmillan Co., London­ (h) The structure of food manufacturing. Melbourne-Toronto, St. Martin's Press, Tech. Study No.8, June 1966. New York, 1967. (28) Nelson, p. E., and L. E. Preston. Price (17) Hammond, J. W. Marketing and pricing of merchandising in food retailing: a case butter. Minn. Agr. Expt. Sta., Misc. Rpt. study. Inst. Business and Econ. Res., 77, March 1967. Univ. Califo, Berkeley, 1966. (18) Hawkins, E. R. Price pOlicies and theory. (29) Nourse, E. G. Price making in a democ­ Jour. Mktg., January 1954. racy. The Brookings Institution, Wash­ (19) Heller, W. W. New dimensions in political ington, 1944. economy. W. W. Norton and Co., Inc., (30) Preston, Lee E. Profits, competition, and New York, 1967. rules of thumb in retail food pricing. (20) Irwin, H. S. Unpublished paper on the pric­ Inst. Business and Econ. Res., Univ. ing of farm products, 1968. CaUf., Berkeley, December 1963. (21) Kaplan, A. D. H., J. B. Dirlam, and R. F. (31) Rogers, G. B., and L. A. Voss. Pricing Lanzillotti. Pricing in big business--a systems for eggs. U.S. Dept. Agr•• Mktg. case approach. The Brookings Institu­ Res. Rpt. 850, May 1969. tion, Washington, 1958. (32) Shepherd, G. S. Marketing farm produces. (22) Kefauver, Estes. In a few hands. Pantheon Iowa State Col. Press, Ames, 1947. Books, Division of Random House, New (33) Stigler, G. J. The theory of price. The York, 1965. Macmillan Co., New York, Rev. Ed., 1952. (23) Macklin, T. Efficient marketing for agri­ (34) Taussig, F. W. Principles of economics. culture. The Macmillan Co., New York, The Macmillan Co., New York, Vol. I, 1921. 2d Ed. Rev., 1918. (24) Manchester, A. C. The structure ofwhole­ (35) U.S. Department of Agriculture. Agricul­ sale produce markets. U.S. Dept. Agr., tural markets in change. Agr. Econ. Econ. Rpt. 45, April 1964. Rpt. 95, July 1966. (25) Mansfield, Edwin. Monopoly power and (36) Wesson, W. T. The economic importance economic performance. W. W. Norton of futures trading in potatoes. U.S. Dept. and Co., Inc., New York, 1964. Agr., Mktg. Res. Rpt. 241, June 1958. (26) Mason, E. S. Economic c(mcentration and (37) Wing, K. E. Central market pricingof eggs. the monopoly problem. Harvard Univ. Cornell Agr. Expt. Sta•• Bul. 1012, De­ Press, Cambridge, Mass., 1957. cember 1966.

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