A market share analysis of U.S. demand for selected domestic and Mexican frozen vegetables Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/6395wb69h

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  • This study examines the link between policy-induced changes in the relative prices of Mexican and U.S. frozen vegetables and their shares of the U.S. market. Several scenarios were examined in order to assess the impacts on quantities demanded of both U.S. and Mexican produced frozen vegetables caused by changes in their relative prices. An econometric model incorporating a two-stage budgeting process based on Armington's model of demand for commodities differentiated by kind and origin was used to estimate the U.S. demand for frozen vegetables. This was accomplished by first deriving an overall, or total U.S. demand relationship for frozen vegetables and then estimating the U.S. demand relationships for frozen vegetables by country of origin (U.S. and Mexico). The relative price elasticities estimated by the model were used to investigate how changes in the relative prices of frozen vegetables by country affect the composition of demand for frozen vegetables in the U.S. The scenarios examined relative price changes resulting from different economic and political developments. These included such things as reductions in U.S. tariff rates brought about by further trade liberalization (such as the proposed North American Free- Trade Agreement), changes in the minimum wage rate in both countries, and increased technology transfer from the U.S. to Mexico. Applying the estimated model parameters to these scenarios suggested that relative price changes in frozen vegetables from, say Mexico, not only affected the price and quantity demanded by U.S. consumers of Mexican frozen vegetables, but it also affected the price and quantity demanded of U.S. produced frozen vegetables by U.S. consumers. Demand for frozen vegetables produced in Mexico was estimated to be relative price inelastic at -0.6375, while demand for frozen vegetables produced in the U.S. was relative price elastic with a value of -1.3445. According to the model projections, price changes in frozen vegetables produced in either country tend to have a greater effect proportionately on the quantity demanded of frozen vegetables produced in Mexico. This can be attributed to Mexico's relatively small share of the frozen vegetable market in comparison to the United States. The effect of a relative price change caused by a free-trade agreement, which lowers the price of Mexican frozen vegetables through tariff removal, would increase Mexico's market share and decrease the United States' market share in the U.S. frozen vegetable market. But when one looks at the quantities of frozen vegetables implied by these market share changes one discovers that they are relatively small compared to the total volume of frozen vegetables in the market.
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