Reconsidering the Nature of Price Transmission and Market Power in the Liquid Milk Market of Türkiye

ABSTRACT This study investigates price transmission and asymmetry in the raw and retail liquid milk market in Türkiye. Using monthly data from January 2003 to April 2022, it analyzes the relationship between the raw milk and the retail milk price by developing and using a simple mark‐up model to measure the market power. Additionally, an asymmetric (irreversible) error correction model is used for investigating the price asymmetry dynamics, which is a crucial indicator of market power. The findings reveal that dairy retailers in Türkiye have high market power. Furthermore, the evidence of positive price asymmetry supports the presence of high market power and consolidation in the liquid milk market of Türkiye. More interestingly, overshooting in retail milk prices is observed when raw milk price increases permanently, which potentially reveals the role of macroeconomic and behavioral factors in pricing behavior.