Market Structure and Price Adjustment in the Iranian Tea Market

This study investigates the Iranian tea market structure based on the price transmission mechanism between farm, wholesale and retail prices using annual data for the period 1977–2010. For the study of the asymmetry, the Johansen cointegration analysis was used while at the same time an Error Correction Model (ECM Model) was estimated. With the assistance of the cointegration technique, we surveyed theexistence of a long-run relationship between farm and wholesale prices, farm and retail prices. The causality test showed that the farm price determines wholesale and retail prices and the wholesale price causes the retail price, whereas the reverse was determined not to be valid. In addition, application for an error correction model confirmed the existence of asymmetry in the price transmission mechanism within the farm-retail and wholesale-retail. This study used concentration ratios and a Herfindahl-Hirschman indicator to show that the market structure of the Iranian tea industry is almost exclusive. The presence of market power and the exclusive market structure of the Iranian tea industry are the main reasons for price asymmetry.