Price discrimination, exchange rates and markups in export markets: a comparison of the New Zealand and Australian dairy industries

Abstract

Critics of single desk selling believe that there are benefits from free competition in export markets. On the other hand, advocates of controlled marketing argue that free competition will only flood high valued markets to the detriment of the industry as a whole. While several arguments have been forwarded for both single and multiple selling, they tend to be more subjective and difficult to measure. This thesis aims at shedding some light on the difference between these two arrangements. The study will use New Zealand and Australia as case studies.

The thesis focuses on the proposition that single desk selling can maximise producer returns through price discrimination. The study develops a methodology which makes it possible to measure the ability to price discriminate and the degree of price discrimination. The relationship between exchange rate movements and price discriminatory behaviour is also explored. Semilog demand and price functions for six common markets of Australian and New Zealand dairy products were estimated using Zellner's seemingly unrelated regressions utilising Quarterly data from 1981 to 1994. The statistical evidence suggests that both Australia and New Zealand dairy exporter(s) are able to price discriminate in export markets. However, the evidence also suggests that Australia's ability to price discriminate may be stronger than New Zealand's. The test of the hypothesis that marketing arrangements influence exchange rate pass-through was inconclusive, but results suggested that incomplete exchange rate pass-through enhances the ability to price discriminate.