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Abstract
We study vertical price transmission between Israel and the EU in the imperfectly competitive
Israeli citrus export sector, which emerged after the former parastatal marketing board was
liberalised in 1991. We find evidence of positive asymmetry in price transmission, implying
that Israeli exporters’ profits increase at the expense of grapefruit growers, and we argue that
this is evidence that Israeli citrus exporters exert market power vis-à-vis Israeli citrus growers.
This study is unique in investigating vertical price transmission in the international supply
chain for fresh fruits and vegetables (FFV). International FFV trade is especially susceptible
to the abuse of market power since transparency regarding the determination of the grower
price is often very low. In our model approach we explicitly account for possible changes in
exporters’ pricing behaviour in the post-liberalization period. The analysis finds that exporters
transmitted changes in EU import prices to Israeli growers asymmetrically in the volatile
phase directly after liberalization, but symmetrically in the calm phase thereafter.
Furthermore, results suggest that the measured asymmetry in price transmission is
economically significant. Overall, our study demonstrates that liberalization improved the
efficiency of Israel’s international citrus marketing channel, although this took time and was
probably accelerated by government market intervention.