"K Division of Agricultural Sciences UNIVERSITY OF CALIFORNIA ECONOMIC ANALYSIS OF THE MARKET ORGANIZATION AND OPERATION OF THE CALIFORNIA EGG INDUSTRY S. K. Seaver UNIVERSITY OF CAulrOru-lA DAVIS t\^\\ 26 1950 CALIFORNIA AGRICULTURAL EXPERIMENT STATION GIANNINI FOUNDATION OF AGRICULTURAL ECONOMICS Mimeographed Report No. 229 February 1960 ACKNCWIEDGEMENTS The author wishes to acknowledge the cooperation of Henny Penny Egg Conqpany, Michael Brothers Egg Con^jany, Olson Brothers Egg Company, Poultrymens Cooperative Association, Dairy Fresh Products Company, Safeway Stores, Inc., Poultry Producers of Central California, San Diego Cooperative Poultry Associa- tion, and the Council of Poultry Cooperatives, all of whom furnished information. In addition, many producers too numerous to mention provided background informa- tion on methods of payment, grading, and on market organization. Mr, H. B, demons and F. H. Campbell of the Federal-State Market News Service were most helpful in Interpreting prices in the Los Angeles and San Francisco markets by indicating the basis of price reporting and by helping to establish the coit^jara- bility of prices for given grades over time. Thanks are also due Grace Larsen, J. N. Boles, and R. G. Bressler of the Giannini Foundation for advice on analytical methods and for innumerable sug- gestions for editorial and organizational changes in the manuscript. Richard Coutchie, Graduate Assistant, aided in some of the field work and analysis which permitted enlarging the scope of the study beyond original expectations. All of these and many others gave valuable information, advice, and counsel, thus making possible this study. ► ECONOMIC ANALYSIS OF THE MARKET ORGANIZATION AND OPERATION OF THE CALIFORNIA EGG INDUSTRI S. K, Seave3>/ I, Introduction For many years California, whose egg production exceeded local consuirption requirements, was a major shipper to eastern markets. TSiis exportable surplus began to decline after 1930, and by 19U0 the state was on a net deficit basis with local production actually insufficient to supply the demand of a rapidly expanding population. The deficit was not large during the war years—averaging about 15 per cent— but from 19U5 to 1952, imports from other states were required to meet from 20 to 35 per cent of estimted consumption. Import requirements dropped to about 5 per cent of total consuitqption after 1952, however; and in spite of population increases of li.50,000 to 500,000 per year, the state now appears to be approaching a svirplus situation. Two factors have contributed to the recent reduction in the state's pro- duction deficit. The first was the rapid increase in production since 1952 j output expanded by 30 per cent between 1952 and 1958, while eggs available for sale increased 32 per cent. The second was a decline in per-capita consunption of eggs~apparently characteristic of the entire United States— that amounted to some 9 per cent in this six-year period. The population of Calif ornia— and hence the potential market for eggs— rose 28 per cent between 1952 and 1958, but estimates of consunption indicate a tcytal increase of only 17 per cent during the period. With production for sale eaqjanding more than 30 per cent and con- sunption increasing only 17 per cent, the deficit gap was rapidly narrowed. Significant changes have also been taking place within the state, expecially between the Los Angeles and San Francisco areas. Most of the recent upsurge in production has been south of the Tehachapi range— in the Los Angeles-San Diego supply area. This has greatly reduced the egg deficit in southern California and, if continued, will make the south an important surplus area shipping to markets in northern California and to other states. 1/ Specialist in the Experiinent Station, University of California, and^ Professor of Agricultural Economics, University of Connecticut, on sabbatical leave. arO- ij;IqC[JU6 0 J insi ziQ tBri&o mot"* 3c*-o ... .■ ... ... . > -c- '■ ^sesio,. . — se^sia beJ-l.iQ oiljne ad* lo at.^efieiasisrio taqqr - ■ - r':fnolLX}ia rroi^jBlu<$3q' ejfT .boiieq ^ae-^f-xi? airLt.ai- d'heo ^' - ' •' sa«9x. _ . ..... . a.. 1- .-.oij-qp'jyp ■•■ seiamiJw bns ti OC nariJ' ato^if grtlfaflBcpco aloe .toI «c ^iowv- i£>xq«-i saw qfis^ WoKeb W tirieo. iaq V- -:-ra \:L£&t09oy7.' eiBiB 9d& atrfd-lw fioslq gnijfc^ nesrf oalo - . i: -cv..;.^,' "-^^ele-goA 80J txii ai:^- : • • \ ^f- •■ • ■ 5ix! rtol ,.. ^•'■■■frsoqnt m diaon wtt-esfem IXiT^ • • -:^noo IL ^brrs 2. Projections of these recent trends in production and consumption suggest that California as a whole— and southern California in particular— will soon be a surplus-producing area. Such a shift from deficit to surplus production, however, would necessarily mean a drastic reduction in the level of egg prices in the state. As long as California depends on raidwestem surplus areas for substantial supplies, prices in the state tend to reflect midwestern prices plus transportation costs. If California were to become a major surplus region, the surplus would have to be shipped to midwestern and eastern markets for sale, and prices would approximate midwestern levels minus transportation costs. As a consequence, local prices could be esqjected to fall by as much as 12 cents per dozen. Needless to say, a price change of this magnitude would have iinportant effects on both production and consumption. It seems doubtful, therefore, that the egg liidustry in California will expand enough to create large surpluses. On the other hand, it is almost inevitable that the years immediately ahead will bring a further closing of the gap between consun5>tion and production and vith it temporary surplus situations and relatively unstable prices. In view of this changing situation, the present study has been initiated. Its specific objectives are: (1) to describe the major production, consumption, and marketing changes taking place and anticipated for the California egg industry; (2) to study past and prospective price relationships between the Los Angeles and the San Francisco egg markets and to specify efficient prices and supply allocations between these two major markets; and (3) to analyze the potential effects of these changes on egg marketing firms and, within this framework, to explore the advantages and disadvantages of a state-wide producers* marketing agency in California, H, Trends in Production and Consumption A. Production-Consumption Balance in Calif ornitJ ^^ Egg productir>n in California has more than doubled during the 13-year period since 19hS» with the rate of increase averaging about 200 million eggs per year. Annual estimates of production, shown in Figure 1, emphasize the growth in output, but also indicate that the growth rate has been somewhat 1/ See the Appendix for details of production and consun?>tion estiinates for California and other western states. ao 'ic-^ i5rio - o Bio -alls Ifl.tjju-. .-'sXAiio'ilXBO fii 3ft* aniii/fa feeXri 3- Figure 1 TRENDS IN EGG PRODUCTION AND CONSUMPTION CALIFORNIA, 1945-1959 1945 1950 1955 I960 erratic. The annual increase fluctuated around an average of about 175 million eggs from 19U5 to 19^2, for example, then production increased more than 700 million eggs in a single yearj and since 1953, the rate of increase has averaged some 120 million eggs per year. As consequence of these increases, total pro- duction expanded from 2,302 million eggs in 19l6 to U,273 million in 1953, and to U,871 million in 1958. Direct data on egg consuii5)tion are not available by states or regions, but sjjproximate indications of the levels of consunqjtion can be obtained by using population statistics and estimates of national per-capita consumption. The U, S. Department of Agriculture has for many years published data on the per- capita consumFrfcion of shell eggs by the civilian pop\ilation. These indicate that consunrption averaged about 365 eggs per person per year in the early post- war period, but since 1950 has declined more than 5 eggs per year to 321 in 1958. With adjustments for regional differences as suggested by saitqple surveys, these estimates can be combined with population figures to suggest the general level of consumption for any state. Estimates of annual egg consumption in California, based on the above method, are shown in Figure 1. They indicate a relatively steady increase from about 3,250 million eggs in 1914-5 to U,870 million in 1958. In spite of the fact that these are necessarily rough estimates, they can be used in combination with production data to suggest the general production-consunption situation in California. In the period from 19U5 to 1952, consumption substantially exceeded local production; the deficit for the state averaged about 1,000 million eggs per year. With the rapid increases in production during 1952 and 1953, this gap was nearly closed; consumption exceeded production only by about 150 million eggs annually in the period following 1952, and the state appears to have been nearly in balance in 1958. While these changes were taking place in the total production-consumption balance for California, important shifts were occurring within the state. Pro- duction has become relatively less important in the northern area centered on Petaluma and has expanded rapidly in the Los Angeles-San Diego area of southern California. Population has also expanded more rapidly in southern than in northern sections of the state. These general changes are well known, but they are stressed here because of their present and potential effects on egg price relationships and on marketing problems confronting the California industry. Data on production and consumption are not regularly available for areas within the state, but the general situation can be shewn by making estimates based on census production and population data by counties. For this purpose. 5. the state has been divided into the major areas shovm in Figvire 2: (1) the counties constituting the prijnary local supply area for metropolitan San Francisco; (2) the counties in the Los Angeles-San Diego conplex; and (3) the remainder of the state. Production estimates for these three areas are given in Table 1 for the years 19hh, 1951* » and 1958. As noted earlier, production in the San Francisco area has ejqjanded only moderately during recent years, while output in southern California has increased nearly fourfold. As a consequence, the southern area increased in relative iiiportance from about 30 per cent of the state total in I9I4U to nearly 60 per cent in 1958. Estimates of population and of egg consumption for these areas in 1958 are compared with the production estimates in Table 2. The unusually rapid growth of population in southern California has resulted in a total population for that area that is nearly double the population in the San Francisco area. Because of this, total egg consumption in the Los Angeles-San Diego area is now estimated at some 2,900 million per year as compared with 1,600 million for the San Francisco area. Owing to these production and consumption changes, the northern section of California has been transformed from an in^ortant surplus-producing area to a deficit area. Southern California, on the other hand, has experienced production increases that have more than kept pace with population and egg con- sunqption, with the result that it now is characterized by seasonal surpluses. B, Production and Consumption in the Eight Western States^ Estimates of production, consumption, and net balances for seven other western states — Montana, Idaho, Arizona, Utah, Nevada, Washington, and Oregon- have been conputed by methods similar to those used for California. The results are given in Table 3 for 19U5, 1950, and 1958. From these data it appears that the western region may be treated as three subregions. First, in the northern intermountain states — Montana, Idaho, and Utah— production has consistently exceeded consurption. The estimates indicate that these states had a net surplus of 390 million eggs in 19li5, but that con- verging trends in production and consumption reduced the surplus to 2U2 million in 1950 and to lij.8 million in 1958. Second, the southwestern states of Arizona and Nevada have been characterized by increasingly large deficits of production relative to consumption. If these two are combined with California, the aggre- gate deficit for the Southwest amounted to 1,085 million eggs in 19h$, 928 See AH>endix for details of production and cansuinption estimates. 2nco .6)6: at - -9 asri tb; ^ frf fee V. ^f^ . ^-^^C /'x-rr^ if Figure 2 COUNTIES INCLUDED IN TWO MAJOR MARKET SUPPLY AREAS k MtNOOCrNO San Francisco Area Los Angeles - San Diego Area I I All Other ' TUOLUMNC 7. TABIE 1 Eee Production Estimates for Three California Areas, 19UU, 195U, and 1958 ■ ~~~~ ;; TT Estimated productions' Area \ 1950 San Francisco l,29h millions of eggs 1,531 1,530 Los Angeles- San Diego 722 2,30U 2,86U Other in 515 U77 Total 2,h27 U,350 U,871 a/ For a more complete explanation of the method of estimation the assumptions made, see Appendix A, f { TT^i j . .r;.r arid- ..A 8. TABLE 2 Population, Egg Consumption, and Egg Production Estimates for Three California Areas, 1958 Area Population Consumption^/ Production Net surplus or deficit millions of eggs San Francisco 14,607,510 1,599 1,530 .69 Los Angeles- San Diego 8,214^,600 2,861 2,861j + 3 Other 1,511,890 525 U77 - hQ Total ^ i lii,36U,000 li,985 U,871 -Uh ! 1 a/ At rate of 3U7 eggs per capita in 1958. Source of population data: California Taxpayers Association, The Tax Digest- Population Estimates of California Counties (Los Angeles: annual issues}. 1 TABLE 3 Egg Production-Consumption Balances for Eight Western States, 19k$, 19^, and 1958-' ! state ' r Popu- lation Tol Con- sump- tion it , Pro- duc- tion Surplus or deficit lation 195^ Con- sump- tion 3 Pro- duc- tion Surplus or deficit Popu- lation 195B Con- sump- tion Pro- duc- tion 1 Surplus or deficit 1 t thou- sands mil \±ans of eggs sands millions of eggs thou- sands millions of eggs 1 Montana U72 180 2U6 + 66 pyo 227 2li3 + 16 682 1 23U 238 + k Idaho U67 178 280 +102 592 226 27li + U8 658 228 302 + 7U Utah $66 216 U38 +222 692 26ii hh2 +178 861 299 369 + 70 Nevada 125 U8 Ul - 7 160 61 27 - 3U 258 90 18 - 72 Arizona 552 210 77 -133 7ii8 285 71; -211 1,118 388 109 -279 Washington 2,060 785 61k + 29 2,326 826 690 -136 2,706 939 997 + 58 Oregon 1,237 U71 U89 + 18 1,529 583 525 - 58 1,768 613 621 + 8 California 8,523 3,2l47 2,302 -9U5 10,U92 3,997 3,311i -683 m,36U U,98li U,871 -113 Total 1U,002 5,335 U,687 -6ii8 17,135 6,li69 5,589 -880 22,U15 7,775 7,525 -250 a/ For a more complete explanation of the method of estimation and the assumptions made, see Appendix A. 30 million in 1950, and, with the sharp increase in California production, hlh million eggs in 1958. Finally, the northern Pacific Coast states of Washington and Oregon, with substantial levels of production and consumption, have remained nearly in balance through this period. Actually, the estimates indicate a slight surplus of U7 million eggs for the two states in 19U5, a deficit of 19U million in 1950, and a return to a slight surplus of 66 million eggs in 1958. While the surpluses in Utah, Idaho, and Montana have been available for shipment to the deficit states to the south and west, substantial supplemental sv5)plies have also been required from the major surplus-producing states in the Midwest. The eight-state region has been on a total net iraport basis throughout the period, with deficits estimated at 6U8 million eggs in 19l45, 880 million in 1950, and 250 million in 1958. C. Implications of Production and Consumption T rends for the Future The foregoing pages have indicated that California, after many years as a major deficit state, has in recent years moved towards a balanced or self- sufficient situation. Within the state, production has escpanded rapidly In the southern counties and only moderately in the north. Population has increased rapidly, but per-capita egg consumption has declined. As a consequence, total egg production has been moving upward more rapidly than consun?>tion, and the production-consumption deficit has been substantially reduced. In the other western states, the production surplus in Utah, Idaho, and Montana has been decreasing, while the deficit in Arizona and Nevada has increased. In Washington and Oregon, the deficit that existed around 1950 has been offset by production increases, and small surpluses now exist. The net effect for the eight-state region has been a drop in the deficit of production relative to consumption from well over 1,000 million eggs per year in 19it6-19lj8 to srane 250 million eggs in 1958. If these recent trends were continued, the entire region would soon be self-sufficient and eventually on a surplus or exporting basis. Linear extrapo- lations of production and per-capita consumption trends give the 1965 projections summarized in Table h . These suggest that the deficits in Arizona and Nevada would increase from 351 million eggs in 1958 to lOl million in 1965. The lli8 million egg surplus in, 1958 for Utah, Idaho, and Montana, on the other hand, would be decreased to 92 million by 1965— with Utah actually shifting from a net surplus to a net deficit situation. For the three Pacific Coast states, the upsurge in production, if continued, would mean a shift from a net deficit of u, 67 millicaa eggs in 1958 to a surplus of U96 million in 1965. Thus, for the entire region, the 1958 deficit of 250 million would change to a surplus of 177 million eggs per year. Wiile it is true that recent trends imply that the western region in total and California in particular are changing from a net deficit to a net surplus position with respect to eggs, it must be enphasized that the figures in Table h are not presented as serious estimates of the probable 1965 situation * There is no reascai to expect that production and per-capita consumption will continue to follow recent trends; in fact, there are good reasons to question such linear extrapolations. The most important of these is that a shift from deficit to surplus would involve impartant changes in egg prices in the West, and these changes would surely have marked influences on both production and consunqption. As already pointed out, the region has needed additional supplies in order to meet consumption requirements at prevailing market prices. These have been "imported" primarily from the Midwest— particularly from Iowa, Minnesota, Kansas and Nebraska. To obtain these shipments, it has been necessaiy for western prices to exceed those in the Midwest by amounts at least adequate to cover the added costs of transferring eggs from the Midwest to the Pacific Coast— costs of transportation, special packaging, refrigeration, brokerage, and deteriora- tion. At present, these costs total about 6 cents per dozen: transporation, 3»5 cents; additional materisQ. costs, 1»0 cent; brokerage, 0,5 cent; and such miscellaneous items as recandling and deterioration, about 1.0 cent.i'^ This means that California prices for eggs must exceed midwestem prices by about 6 cents per dozen for con^jarable grades and sizes if dealers are to find it profitable to ship eggs to the western markets. Stated in another way, Cali- fornia egg producers enjoy a location advantage of apprcacLmately 6 cents per dozen. Now, suppose that California and other states in the West were to become important surplus producers. These svirplus eggs would have to be sold in out- side markets, and their disposal would be a formidable marketing job. Aside from small potential increases in shipments to the Pacific Islands and to Mexico, production in excess of local consumption requirements would have to be shipped to eastern markets. The tier of states immediately east of our eight- state region— Wyoming, Colorado, and New Mexico—will not provide a substantial outlet for surplus supplies. The next group of states— from North Dakota and 1/ These costs are based on estimates made by California dealers, with some downward revision of added materials costs. 7 fteftd erf+ 12 TABLE Ii Projections of Egg Production and Consumption for the Western States, 1965a/ State Population Consvunption Production Net surplus or deficit thousands millions of egg s Montana 693 211i 231 + 17 Idaho 68U 211 327 +116 Utah 997 308 267 - la Nevada 339 105 12 - 93 Arizona 1,U27 hhl 123 -318 Washington 3,235 1,000 1,233 +233 Oregon 2,162 668 790 +122 California 18,250 5,639 5,780 +lljl Total 27,787 8,586 8,763 +177 a/ See appendix for details* •I-'- 'i-ii I'Mw^iri iiT II IMIII I I II I 13. Minnesota south to Oklahoma and Texas—is in total a heavy surplus-producing area. As a consequence, western surplus eggs would have to be shipped to the Midwest and the East in direct competition with midwestern eggs. This would mean that prices in California would have to drop until they were about equal to midwestern prices minus transfer costs. In short, a change from deficit to surplus egg production in California and in the western region would entail a drop in the levels of egg prices in California and the West of some 12 cents per dozen. Such a change in egg prices would induce major changes in both consur5)tion and production. While egg sales may not respond greatly to small price adjust- ments, a decline of 12 cents per dozen in retail prices can be expected to result in an increase in sales of approximately 10 per cent.-^ This would far more than absorb, of course, the relatively small surpluses projected for Cali- fornia and for the eight western states. On the production side, adjustments would probably be even more pronounced. Production costs for good commercial operators in California amount to approximately 32 cents per dozen.^ During 1957 and 1958, prices received by farmers at ranches in the San Joaquin Valley averaged about 37 cents per dozen for large eggs, 32 cents for mediums, and 2k cents per dozen for small eggs. If these prices were reduced by 12 cents, many California and western poultrymen would find themselves confronted by substan- tial operating losses rather than moderate profits. It seems certain that such changes in the price and profit situation would reverse the production trends, and so eliminate any possibility of surpluses. 1/ Judge reported a price elasticity of demand for eggs of -0.53. With retail prices of about 60 cents per dozen, therefore, a price drop of 12 cents or 20 per cent would correspond approximately to a 10 per cent increase in sales. Judge, G. G. , Econometric Analysis of th e Supply and Deman d Relationship for Eggs (Storrsl 195U), 56p. (Connecticut Agricultural Experiment Station Bui. 307.) 2/ In personal correspondence, A. D. Reed of the California Agricultural Extension Service has estimated annual costs per hen for good commercial produc- tion lAth a flock of 15,000 birds as follows: feed, .1^U.08; chicks, $0.50; labor, $1.05j miscellaneous cash costs, $0.50j depreciation and interest, 5^0.60. From this total cost per hen of $6.73 must be subtracted a credit for by-products estimated at $0.U0. With production averaging 19 dozen eggs per year, the indicated production cost is approximately $0.32 per dozen. For these reasons, it is most unlikely that California and the western region will actually develop important surpluses of production over local con- sumption requirements. On the other hand, the trends now under way make it al- most certain that the current deficit gap will be further narrowed, and it is likely that the state and the region will experience at least seasonal and temporary surplus periods. This back-and^f orth movement from svirplus to shortage can be escpected to result in relatively wide fluctuations in prices and to create new and difficult marketing problems. By a similar token, changes within the region and within California will en^jhasize the need for marketing agencies well designed to adjust supplies among markets and, on occasion, to ship surpluses to distant outlets. Because these potential developments are so intimately con- cerned with the relationships of egg prices in various markets, the following section investigates that subject in sane detail. III. Ihtermarket Price Relationships A. Some Theoretical Considerations The marketing of eggs involves shipments between surplus and deficit areas that tie the United States into a highly integrated and interconnected market. During the 1920 »s and early 1930«s, California was an iitqjortant supplier of eggs for New York City, and even as late as 19i42 shipped some i4,000 cases to that market. Minnesota and Iowa are presently the most important surplus-producing states. They now account for almost half of all eggs moving across state borders in the United States, and ship to markets on both the Atlantic and the Pacific Coasts. And within narrower geographic areas, eggs constantly move to both small and large metropolitan centers. These egg movements are not scheduled by some centralized marketing agency, but are the result of shipments made by traders seeking profitable business out- lets. 1x1 order for any product to move between two geographic points, then, prices at the two points must differ by an amount that will induce producers or marketing firms to incur the costs and risks involved in such transfers. More- over, prices in any given market must be high enough to ccaiqpete successfully with other markets and so to obtain supplies adequate to meet market demands. Eggs from a surplus-producing area may be readily diverted to any of a number of alternative markets, and these diversions can be expected to bring prices throughout the country into a fairly consistent and stable geographic pattern. i m ■.■J. ins'r 15. These interrelations of prices in production and market areas can be illus- trated by a sin^jle example. As noted above, Iowa and Minnesota are the center of a great surplus region from \diich eggs are shipped east some 300 miles to Chicago and 1,000 miles to New York, At the same time, this surplus region ships eggs west approximately 1,^00 miles to California cities. Suppose we represent egg prices in the surplus-producing region by the height of the vertical line DE in Figure 3. Prices in the markets served by this region will then exceed the price DE by amounts equal to the transportation and transfer costs— these are suggested in the diagram by the upward-sloping straight lines to the east and west of DE, but the exact fonn of this geographic price structure, of course, will depend on the specific relationship between transfer costs and distance. The diagram also indicates the approximate location and prices for California (A), Chicago (B), and New York (C). It is easy to understand from this construction that produers located to the left of D will find it to their advantage to ship to California, ^diile those to the right will have their most economical outlets in Chicago and other eastern cities. Producers located at D in the heaart of the surplus region, however, will find the choice of market a matter of indifference and so will ship both east and west. Suppose now that prices in California increase owing to either an increase in demand or a decrease in nearby production. With higher prices at A, producers at D will now find some advantage in shipping to California, and the margin of indifference will be shifted somewhat to the east of D. This means that Cali- fornia markets will obtain larger supplies by bidding them away from eastern markets. As a consequence, shorter supplies in eastern markets will force prices \xp. Eventually, a new equilibrium will be established with a generally higher geographic price structure and with a slight enlargement of the area supplying California. This is indicated in the diagram by the price structure A'E'B'C. Note that the final location of the margin of indifference at D' does not differ much from the original D: prices in all the markets have increased by nearly the same amount, and only minor shifts in the margin between eastern and western shipments are necessary with the large surplus supplies available around D. The foregoing discussion suggests an important characteristic of perfect markets in space, namely, that prices in all markets tend to move together. Viewed from the point of sxirplus production, the structure of prices for the entire country increases in all directions in a vast cone-line price surface. If supply conditions at this focal point change, exactly equal price changes will be expected at all consumer markets. Viewed from the standpoint of any particu- lar deficit point such as San Francisco, changes in demand in that city will ^.eci 6hS ft; tbftt -i -.tr.«*r» 1,. u ■ » ^1 ■ 1 ; - , ?. 1. I Figure 3 RELATIONSHIP OF PRICES IN A MULTIPLE -PRICE MARKET Distance I 17. interact through minor shifts in the margin between eastern and western shipnents, and prices in all areas will move up or down by almost equal amounts. In short, with a single market in space, prices in all parts of the market area will tend to move together in an approximately 1-to-l ratio. This discussion has proceeded under the assuii5)tions that output remains con- stant in the producing area and that no changes occur in the transfer cost function. The final equilibrium for a number of surplus and deficit areas involves the interaction of supply functions in various parts of the producing territories, demand functions at the consumer centers, and transfer cost relation- ships. This means that all surplus and deficit areas are related in a complex and interdependent system, where a change in demand or supply in any part will affect the quantities supplied to and consumed at all points and the prices at all points. This discussion has indicated the price and shipment reactions expected in a group of interrelated areas in which corrective farces are assumed to operate almost instantly following an initial disturbance. In other words, as soon as prices change in city A, prices in city B instantly move in a like manner. Such movements involve, among other things, perfect knowledge of price changes, plus the expectation that the changes will persist long enough for the producer or marketing firm to adjust. Suppose, however, that a firm expected a price rise of a few cents at some distant city to persist for only a day or two. Under such circumstances, the firm would not divert any of its supplies from other markets because the eggs could not arrive in time to take advantage of the higher price. Even with perfect knowledge and the expectation that the rise in price will per- sist long enough to shift supplies, the quality of product available may not in a short period meet the specifications of the high-priced market. For these and many other reasons, intermarket prices will not agree completely with the perfect model outlined. What if prices between two markets differ consistently and for long periods by more than the transfer costs? This may be due to lack of knowledge or to monopoly or oligopoly elements in one or both of the markets. Lack of knowledge is not a likely explanation where prices differ by more than the transfer costs for a long period, for this would provide opportunities for present or even new firms to enter and through arbitrage bring prices in the various markets more or less in line with expectations of multiple-priced markets. We would suspect, therefore, that barriers to entry or other elements of monopolistic control were operating to restrict the flows of eggs between these markets that would other- wise force prices into the perfect market relationship. 3^ Sf 301. *K , -iqxe f:: - . 18 B. Statistical Studies of Intemarket Price Relationships If markets are related in the manner just described, then comparisons of actual prices in several markets should reveal hi^ correlations both in the timing of price changes and in the amplitude of fluctuations. If we relate prices in two markets, we would expect the regression line to have a slope approximately equal to 1,0, indicating that price changes in one market are matched by approximately equal changes in the second. Moreover, we would expect that such an analysis would yield a correlation coefficient of approximately 1.0, indicating that prices in the two markets moved Mp and down with perfect, or nearly perfect, correlation. In the analyses that follow, we shall test actual price movements in several markets against these perfect market expectations. We realize in advance that knowledge of supply and demand conditions in all markets cannot be perfect, and that the diversion of shipments between markets by which price discrepancies are corrected takes some time. Therefore, actual prices will deviate to some extent from the perfect-market relationships and at best tend towards and fluctuate around them. In addition, the reported prices available for this study are far from perfect. Ideally, we should like to coitpare prices in the surplus region with prices in major consuming centers. Consistent price reporting for the Iowa- Minnesota area has only recently been established, however, and so we are forced to make direct comparisons between terminal markets such as Chicago, Seattle, Portland, San Francisco, and Los Angeles. The theoretical models assume perfect con^jarability of prices with respect to the grade and quality of the product and to the point or level in the marketing system. Prices actually reported refer to "minimum 60 per cent Large A eggs" in some markets, while in others the quotations are based on "at least 30 per cent AA eggs." Moreover, the effective definitions of Grade B, Grade A, or Grade AA eggs may differ somewhat from market to market. Similarly, the price quotations may refer to transactions at different points in the marketing system. The whole- sale price quotation for Los Angeles, for example, applies to small volumes traded among distributors, whereas the Chicago quotation refers to prices paid by whole- salers for eggs arriving at Chicago. In spite of these difficulties, conparlsons of prices in Chicago and in West Coast markets should reveal much about the nature of the price structure and market for eggs. For reasons noted above — differences in grade and in market level and comparisons between terminal markets rather than between surplus points and terminal markets — such analyses cannot be expected to reflect prices differ- ing exactly by transportation and handling costs. On the other hand, they should .0. snqivtale-i'io;^ •arf. q j '^nil « bXijfOK ev, .ow sw tisvti.s.- -oa exf* nx so :wpB ■}B'it3q [If hi mob hm q- Silt iti at^ a-i-nanavom eoxaq I&vfc >w ,wo£Iol dr. ; ad 4omn^ t ©IS sw bn;= isvpwOj '''cf yf +rp' ■" ^-rf* '.iL . sxcq e- Tsq OJ' :»q9'i 'V,^ rco bB3.!? ' d& BioriJo ni 19 be fairly reliable indicators of the extent to which prices move together and in conformity with perfect-market principles. With this in mind, egg prices in Chicago have been related to prices in Seattle, Portland, San Francisco, and Los Angeles. The analyses have referred to two time periods, 19h$ to 19$2 and 1953 to 1957, and have been based on monthly averages of the wholesale price quotations. Monthly vdiolesale prices for Large, Extra eggs in Chicago are plotted against monthly wholesale prices for Grade A Large eggs in San Francisco in Figure U. Since both markets receive shipments frran the Iowa-Minnesota surplus region, San Francisco prices should exceed those in Chicago by an amount equal to the differences in handling and transport costs to the two markets. For this time period, prices reported for San Francisco did exceed Chicago quotations in all except one month, and on the average, the San Francisco prices were higher than Chicago prices by 5.88 cents per dozen. While this seems reasonable in view of transportation costs, no particular significance can be attached to it because of differences in the bases for the quotations. On the other hand, it is clear from the diagram that prices in the two markets generally have moved together and in close conformity to the 1-to-l relationship that would be expected in a perfect market. The slope of the solid line in the diagram represents such a 1-to-l relationship, and it will be observed that actual prices cluster reason- ably well around this line. While there are short-run deviations, the regression accounts for about 8? per cent of the variance in prices. Correlation analyses give slope values ranging from 0.93 to 1.06, as indicated by the dashed lines in the diagram, but the slight differences between these results and the expected value of 1.00 for a perfect market are not statistically significant. A summary of the results of statistical analyses for all pairs of markets and for the 1914.5-1952 and 1953-1957 tine periods is given in Table 5. In all cases, average prices were higher in the West Coast markets than in Chicago, as is to be expected in view of the deficit position of the West. In all cases, price changes in Chicago were highly (but not perfectly) correlated with changes in western markets; the regressions explained from 81 to 87 per cent of the price variance. In all instances, the estimated slopes of the regression lines did not deviate greatly from the perfect market relationship of 1,00. It is true that slope coefficients ranged as high as 1.20 and as low a 0.80, but 12 of the 16 coefficients reported fell in the 0.91 to 1.06 range. For most of the cases, departures of calculated slope coefficients from the theoretical value were not statistically significant. There is some evidence that the relationships for Seattle and Portland were significantly lower than 1.00 during 1953-1957, and that those for San Francisco and Los Angeles were significantly higher than 1.00 ■vrtsii ■-: .:rO nol ©«J YicftiT oft ''1957 5.81 6.82 0.91-1.05 0.85-0.98 86 86 1 1 Portland i I 191)5-1952 1953-1957 6.10 7.20 0.91-1.05 0.80-1.00 86 81 j San Francisco 1915-1952 1953-1957 6.82 5.89 1.02-1.20 0.93-1.06 86 87 Los Angeles 19U5-1952 1953-1957 5.85 U.05 1.02-1.19 0.91-1.05 87 87 a/ See Appendix B f or details. .0 : .0 ' 0- • i 22 during 1915-1952, but the evidence is not conclusive, and in any event, the dlf- ferences are not great. Finally, for each pair of markets, the slope coefficients appear to have been higher in 19li5-1952 than in 1953-1957, but this change may be more related to the increases in freight rates than to basic changes in the nature of the market. All in all, it appears that egg prices in the West Coast cities have been closely related to prices in the Midwest in reasonable conformity to the concept of a single, nation-wide market,^ C» Egg Prices in San Francisco and Los Angeles As noted in Section II, California has been a deficit egg-producing area during the period since World War II. "While production has Increased more rapidly than consumption, the state as a whole still needs to lu^jort eggs from the Midwest to fill consuii?)tion requirements. This should mean that egg prices In the major metropolitan centers at San Francisco and Los Angeles move very closely together. In fact, basic prices in these two cities should be about equal, with each representing prices in the Midwest plus transfer costs to California. Studies of monthly prices paid by retailers in the two cities confirm the hypothesis of highly related markets. As is indicated in Table 6, the relation- ships between the two cities for Grade AA Large, Grade A Large, and Grade A Medium eggs have slopes that differ very little from the e:^ected values of 1.00, and these relationships explain well over 90 per cent of price variance in all three cases. In spite of these results, the average levels of prices appear to be somevAiat out of line. For Grade AA Large eggs, Los Angeles prices exceeded those in San Francisco by an average of 0,55 cent per dozen, but for Grade A Large and Grade A Medium eggs, San Francisco prices were higher by I.76 and 2.1)7 cents per dozen, respectively. With intercity transfer costs estimated at about 1.3 cents per dozen, it appears that the price differences for Grade A eggs represent significant departures from perfect single-market pricing.-^ 1/ See Appendix B for details of statistical analyses and tests of signifi- cance. 2/ If new materials are used, cases, flats, and fillers would cost about hi cents; transportation, 30 cents; and so total transfer costs from Los Angeles to San Francisco would amount to 77 cents per case. If these eggs were sold in Los Angeles, total costs would be 51 cents: 6 cents for the case, plus h$ cents for transportation. The additional cost is thus 26 cents. With a 15-cent allowance for brokerage, costs will be lil cents, or about 1.3 cents per dozen. AC 3 Bl. 23. TABLE 6 Conparisons of Egg Prices in San Francisco and Los Angeles®;/ Grade, size Average price difference: Los Angeles less San Francisco Regression coefficient Price variance explained Monthly averages, 19U8-19583/ Large, Grade AA Large, Grade A Medium, Grade A Daily prices, 19582/ cents per dozen 1.005 - 1.08U 1.006 - 1.058 0.976 - 1.036 0.975 - 1.531 per cent +0.55 -1.76 -2.U7 -It. 18 93 95 9h 6h a/ See Appendix B for details. b/ Average prices paid by retailers; eggs in cartons delivered to store. c/ The low side of the daily price quotation, paid by retailers for eggs in cases; "* f.o.b, distributors* plants. 2k. Differences between San Francisco and Los Angeles prices for the 1948-1958 period are plotted in Figure 5. This diagram confirms the above statements: Grade AA Large prices average about the same in the two cities, while prices for Grade A Large and Grade A Medium eggs are generally hjgher in San Francisco and frequently higher by from 2.0 to 6.0 cents per dozen. The diagram also empha- sizes that prices in the two cities are not in a fixed or constant relationship, but vary throughout the season. In almost every year, for example, Los Angeles prices were higher than prices in San Francisco during parts of the year for both Grade A Large and Grade A Medium eggs. No significant trends in these relationships could be detected, however, nor did there appear to be consistent shifts in seasonal patterns. The seasonal patterns of price relationships are presented on a different basis in Table 7, vh.ere the number of maiths in idiich Los Angeles prices ex- ceeded those in San Francisco and vice versa are summarized. Bius, for Grade AA Large eggs, January prices were higher in Los Angeles than in San Francisco for 10 of the 11 years covered ty the study. In general, Los Angeles prices for this size-grade category were usually higher than San Francisco* s during the January- through-May period, and lower than San Francisco's in July through September. For Grade A Large eggs, San Francisco prices were almost invariably higher during the last six months of the year; Los Angeles prices exceeded San Francisco prices about half of the time during February and March. February and March were also the months in which Los Angeles prices were apt to be relatively high for Grade A Medium eggs, but San Francisco exceeded Los Angeles even in these months and was clearly dominant during the other months of the year. With the upsurge of production in California in recent years, the Los Angeles-San Diego area developed a surplus of production over local consun^jtion requirements in 1958. Because of this and the resulting movement of eggs between San Francisco and Los Angeles, this year has been selected for a study of daily prices. It should be pointed out that daily prices in two markets can be expected to vary more than monthly average prices. Over the period of a month, there are ample opportunities for lAolesalers to learn of price dis- crepancies and to make compensating adjustments in shipments. For a shorter period, on the other hand, knowledge may be imperfect and shipments delayed, so that deviations in prices in the two markets could easily exist. Even daily prices in two adjacent markets such as San Francisco and Los Angeles, however, should stay reasonably well in line as measured by average relationships. s-rodfi erf.- . MO j&e- ' ■■ i rtx fcsj+olq a'ss be' ovfd 9ff* rti: ©Jaas cfs ssstevfi r,, ■ -^J M ebs't.) tb ©ff: GJ/fflO 0.:> 0*0.' 1 . •■ sT '^'-s I'T/:; -'nt-e e^A seidv ©oIt- . rr<4?5 fit. -'♦eoflt b* - eaoliq eeXegoA 8c.I "-''t hnt'-^^o t»ts9^ XI el!* itgiti iXsvld'alsT ad o>t d-qjs ©rtsw ^: ■ ^ r' ' eeerf^t / ■ soXegrtA so4 X)©i)=.'-- ■ ■ • - - - - ; ^ Sithiom -isjH" - —V- ... ... ' v:I-tBai:r' -^'^ ^'n^ iiiii-ioliXaO rr I . + o,; ..-.-'ij OtO.- - Figure 5 DIFFERENCES IN PRICES TO RETAILERS FOR CARTONED EGGS, BY MONTHS, 1948-58, LOS ANGELES MINUS SAN FRANCISCO 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 (){ 26. TABIE 7 Frequency Distributions of Months in Which Los Angeles Prices Exceeded San Francisco Prices for Large Grade Ak, Large Grade A, and Medium Grade A Eggs, 19U8-195;8£/ Month Size and grade Lar ge AA Large A Medium A Los AJigeles plus San Francisco plus Los Angeles plus San Francisco plus Los Angeles plus San Francisco plus January- 10 1 2 9 1 10 February 11 0 6 k 6 Marchy 11 0 S 5 5 6 April 10 1 k 7 0 11 May 9 2 3 8 0 U June^/ 6 5 3 8 1 9 July 3 8 2 9 0 11 August 1 10 1 10 0 11 September 1 10 0 11 1 10 October 5 6 0 11 3 8 Novenber 7 h 0 11 1 10 December^/ 6 h 2 9 1 10 a/ All prices are those paid by retailers to distributors for cartoned eggs delivered to retail stores. b/ Where the number of observations for each size does not total 11, as for for Large AA eggs in December, average prices were the same for one month in the 1911.8-1958 period. ^ ^ r ,...1 -« f ^fr/<--n.' itVJ^F!Wt.*V?V.'^y"'i%'gin>- r llrtiMUnWit*." or XI 27 Price movements in the two markets, trading practices, and marketing channels are well known to distributors— some distributors, for example, operate in both markets. Moreover, supplies can be diverted from one market to the other within one or two days. The study of daily prices was based on market reports of prices paid by retailers for Grade A Large eggs in cases, f.o.b. distributors* plants. Daily quotations are given as a range in pricesj for present purposes, the low side of the quotation has been used. Results of the analysis are given at the bottom of Table 6. Note that, while prices in the two markets were defnjiitely related, the degree of correlation is much lower than was true for the monthly prices. About 6k per cent of price variance is associated with the regression. Note also that the slope of the regression is estimated as falling between 0.975 and 1.531, with an average value of about 1.25. This means that San Francisco prices tended to move about 25 per cent more than the comparable movements in Los Angeles prices. Finally, the results indicate that the "low side" quotations averaged some i;.2 cents per dozen lower in Los Angeles than in San Francisco. This compares with an average difference of monthly prices for 1958 of 2.U cents. Part of the dif- ference may reflect a wider range in quotations at Los Angeles—and thus a lower "low side"— but apparently prices were definitely lower in that market and by amounts greater than would have been expected under perfect-market conditions. In short, the analysis of daily prices in Los Angeles and San Francisco for 1958 suggests very significant imperfections in the market and pricing mechanismj and these imperfections are reflected in differences in average prices, relatively high slope for the regression line, and a relatively low correlation. Apparently, part of the explanation of these results is in the fact that the Los Angeles market has maintained a much larger price spread between size-grade classifications than has the San Francisco market. Table 8 shows the distribu- tion of price spreads between Grade AA and Grade A quotations for the two markets during 1958. For Los Angeles, the weighted average spread between the high-side quotations for Grade AA and Grade A Large eggs was U.3 cents per dozen, irtiile for San Francisco it was only 1.8 cents. On the low side of the quotation, the spread between the two grades in Los Angeles was consistently 5.0 cents per dozen, while in San Francisco it was again 1.8 cents. As previously pointed out (see Table 7), the higher priced market with respect to Grade AA prices fluctu- ates between Los Angeles and San Francisco. In other words, a con?)arison of Grade AA prices would lead to the conclusion that the level of prices in the two markets is reasonably consistent. On the other hand. Grade A prices in San 1 'H'^ ■•"'adA .^epxTcq ■ • vib erf* lo dhce? .acnes' 4,? "*io •«>{ ' .bosif-ftead 'Sil' iuo^is. ■ lo ftj.'L-'T - ci&tiJr sion in»o • ■ 9tLt 111 si:' ow^ arfj- 10? p-r • ■^.•'^-"^.''■'r- V . neeo" everi ijliicw f-" -^ ^01 • . ■ r-vi ,^ , . 28. TABLE 8 Frequency Distribution of Price Spreads Between AA and A for Large and Medium Eggs for Each Week, Los Angeles and San Francisco, 1958^' Los Anseles San Francisco Spread between AA and A Laree Medium Large Medium High side Low side High side Low side High side Low side High side Low side cents per dozen number 0 ^9 16 1 2k 26 3 32 2 7 Ik 12 k 3 3^ 13 13 k 32 11 52 1 1 5 17 52 Average- ^.3 5.0 3.1 1.8 1.8 0.1 0.8 a/ The weekly comparisons are based upon a Wednesday observation for each week. ~ This was done to reduce the work since a single weekly observation should not affect the results. b/ Blanks indicate no observations at this price spread. c/ The weighted average price difference between Grade AA and Grade A eggs. 29. Francisco are consistently above Los Angeles because in San Francisco the Grade A prices approach more closely Grade AA prices. Approximately 2.5 cents of the difference between Los Angeles and San Francisco on Large A eggs results from lower prices of Grade A in relation to Grade AA in the Los Angeles market. The same obtains for medium sizes. The high side of the Los Angeles quota- tion averages 3.1 cents per dozen difference, while the low side is h cents every week of the year. In San Francisco, the high side differences between Medium AA and A are almost zero, while the low side weighted average difference is about 0.8 cent per dozen. In other words, if the Medium AA prices of eggs were exactly the same in the two markets, then Grade A prices in Los Angeles would be 3 cents lower on the high side and 3.2 on the low side. The general practice is to maintain the price spreads, especially in the Los Angeles market. In this market, no change took place on the low side of the quotation for either large or medium eggs, and even on the high side there is less variability than for San Francisco. Further, distributors indicated that the common practice is to sell Grade AA eggs at Grade A prices, vrtiile maintaining the spread, whenever inventories of Grade AA quality eggs become excessive. !Iliis may be a logical practice on the part of the distributors, of course, in the interest of increasing profits. It is a form of price discrimination— maintain the spread for Grade AA over Grade A, sell what the market will take at the higher level, and dispose of the remaining quantities at the lower level. Remember that the per-unit purchasing and processing costs of the two qualities. Grade AA and Grade A, are exactly the same in the Los Angeles market. If prices of Grade A eggs were raised approximately 2.0 cents per dozen in Los Angeles, vhile Grade AA prices were held constant, price relationships in the two markets would conform rather closely with e^qiectations so far as average levels were concerned. Such a move would require a revision in the entire pay- ing system. Large quantities of eggs are now purchased on the basis of "14--5-6 contracts," or with essentially similar ar rangements.i^ Under these circum- stances, the distributor gross margin is determined to a considerable extent by the proportion of eggs actually sold as Grade AA. These Grade AA eggs are paid for on the basis of Grade A prices, and so some of the l4.3-cent spread between 1/ The contract" refers to the system commonly used in Los Angeles to establish producer prices for eggs. In brief, producers receive h cents per dozen under the high side of the quotation of prices paid by retailers for Grade A Large eggs, with discounts of 5 and 6 cents, respectively, for medium and small eggs. No premiums are paid by distributors for Grade AA or extra large sizes, although distributors normally obtain price premiums from retailers for these grades and sizes. -ed-oi ^ ,. ^oA 8oJ e/ff ■ V19VD ejneo il ^ afaie, . .. . ^-ijods si: ©swiatel'Ub > BtQW 2358 3,0 B ' Oil; a... Ofcia .WJ; . S' + bect-Bolhot: ^'t'3^a(SlrL&€. a/,UiU-Bvnias:'. ©Utdw .,.390i:-iq A " ,;^0:^£JEI^ eelegitA aoJ til tiosQb Ttaq arfuso .O.S >tles J-06 erit ixr nQ-lsivsT s lo BJfeead, no ,. ■.•xifeXsr ■ . . . , ■• ' troX erit* r, ^ •to' eig-i«j. 'I j . i iii-x\.. ©iti ';.o esoqsiJL- x«» »/ . . Q'iau sgjiS A 1X1. 80r>.' cntolxtbo' ? JOT £ dbi/o' . 30. Large Grade AA. and Grade A is necessary to cover distributors* costs and returns. Increasing Grade A egg prices relative to Grade AA tdll increase paying prices and so lower margins, but this could be offset by appropriate adjustments in the paying schedule. Changes in the system to include one of the most inportant con- sumer grades— Grade AA— and the possibilities of narrowing price spreads between grades should be considered seriously by the industry. Even if adjustments were made in the between-grade price spreads, the analysis of daily prices indicates that Los Angeles and San Francisco have not operated as parts of a single market. As a matter of fact, with a growing sur- plus in the southern area, prices in Los Angeles should be scanewhat lower than in San Francisco, and surplus supplies should move from the south to the northern metropolitan area. The market difficulties suggested by the foregoing analysis are in part related to the average levels of prices in the two markets. but, in addition, refer to the tendency for prices in the two markets to fluctuate some- what at random, and for San Francisco prices to fluctuate mare widely than prices in Los Angeles. Examination of the daily quotations for Grade A eggs (low side) for 1958 suggests that price differences between the two markets varied from -0.5 to 9.5 cents. During the first six months, most of the differences fell in the 1.5- to 3.5-cent range, however, while in the last half of the year the typical situation found San Francisco prices above Los Angeles by from 5»5 to 7.5 cents. It seems quite possible that this failure of market mechanisms to keep prices in line is related to the inadequacies of the present system in dealing id.th a growing local surplus. In any event, it is clear that certain institu- tional and economic characteristics of the egg market must be operating to prevent— or at least not to facilitate— the equalization of prices along more rational lines. Section IV of this report, therefore, considers in some detail the stinicture and operation of egg marketing in California, IV. Operation of the Los Angeles and San Francisco Egg Markets and the Resulting Price Stnicture A. General Characteristics Both San Francisco and Los Angeles are characterized by a few large and dcstiinant tdiolesale egg distributors. In San Francisco, two diatributars sv5)ply • ■ -aires &j3:-?joi;Xl eisjitm owi J Sit' ea^fsoibot e^ac'ZQ ■& 7.0 ,BStS ..5fn srii .'J osslDtas'sli n«S •jol b«a ^nofene'v .-Je .t£;; : oTO«i gaols s«o±aq noJttffis.. .^rlt— si '?*•?:!:'■ rjfii od-itofl*a£sr +.o ti-- -.A T .-.»■«•■ ">/•- 31. approximately hS per cent of the eggs sold at retail In Los Angeles, seven distributcxrs handle apprajcLmately 70 per cent of total sales, with the largest supplying 20 to 25 per cent of total market requirements. These market shares are based upon estimates of total consurtqption of 65,000 cases per week in San Francisco and 100,000 in Los Angeles. The daily and weekly supply of local eggs in each market is highly predict- able. Egg production is not greatly affected by vagaries of the weather and not highly sensitive to fluctuations in availability of feed. Out of the rather con- stant supply, all the dominant firms obtain their daily and weekly requirements from producers who are tied to them through various forms of contracts usually running one year. In other words, for short time periods, marketing firms can predict rather accurately their receipts and also those of their rivals. Esti- mates are that 80 per cent of the total supply of near-by eggs in the Los Angeles market is committed by various legal means to specific dealers. This means that distributors need not fear entry of new firms on the buying side, at least dur- ing the contract year. The same holds for San Francisco, although estimates of the total quantity committed through contracts are not available. Not only is there general knowledge of total quantity and of the supplies that each dealer controls, but paying prices are also well known in these markets.'^ Most of the eggs, except the volume inqported from the Midwest and other points, are paid for on the basis of administered selling prices to retailers.-^ Producer payments are based upon the Federal-State Market News Service quoted prices, and all dealers pay identical prices except for minor differences, such as quality discounts, idiich vary with distance from market and premiums for number of cases collected per stop. In Los Angeles, paying 1/ Boles, James N., and Richard Simmons, An Eccnomic Statistical Analysis of Egg Prices Paid by Retailers in the San Fr ancisco Bay Area, "1952-1953 (Berkeley? University of California, Division of Agricultural Sciences, Agricultural Esqjeri- raent Station, July, 1959), p. 2. (Giannini Foundation Mimeographed Report No. 220.) 2/ One of the dominant firms in each market follows a somevdiat independent paying system. 3/ The extent or effectiveness of the retailers bargaining on price is not known. The degree to which retailers are effective in establishing a siiigle "all or nothing" price is not known but is a point which might yield significant results on further research. It is, of course, true that all eggs are not sold at the high side of the quotaticai. . ; ■ i. ^ . sv> i s^s- aou. . bfia o : ;e-;i;;p9'x y.J:f9sw. I: \f Ci:sii .Ttidiit , . snail srci.js;f*iSiT!, ^sfjoiTtaq ^jifiir; d-Tco'iia "xc c-xo 3oJ[ orliJ ai aa^a ^rf-isen lo p'qcti'ai isJo.t srf* 16 *aeo t jsxiJ- sflr-a-n ijjr^lT .aieXsdb rj.rUo9<5s o^- Bnisa'a isge- axjciisv /^tf becf-t-onrttb:? el -Tu.^ d-BisaC i& ,sbjta 3n>Y«rf: e/i^" no «rrxxl wen lo ^dt» -obsI iva b*-- .sld5£iev4.,^a.'«i«:. aJ'bs'sd.:- lot arfi oaoiit ai ccnosxA Xlaw o^Ls ■e>'as aaioxiq ^ . i/d t8loi^» lelasfo rf-isp feiU tnnxirj ■sol: .J-qsoxe esoXTCf Xsai^nsfcl" ■v:fiq'atBX«i<5b ix« bAb . avp ©oi " ' " ,esXog \ 97.* 3 32. prices are based upon the high side of the Market News Service quoted case prices to retailers, f.o.b. distributor's plant. Producers are paid, for Large A and better, 3 to U cents under the high side of the Grade Large A quotation, U to 5 cents and 5 to 6 cents under the high side of the medium and small case quotation, respectively. The fact that both markets have paying prices based directly on selling prices provides an additional presumption that all firms will tend to follow closely any price changes. -i^ Failing to follow a general increase in prices would result in paying prices below one»s rivals. Loss of producers and of volume would not occur immediately because of the assurance of supply through contracts, but management must take account of possible losses when new contracts are signed. Strong economic pressure arises, therefore, to follow every price increase of a rival even in the absence of a so-called price leader. The opportunity to gain sales outlets by not following a price rise is largely aca- demic because, with local supplies tightly controlled, a rival cannot in the diort run increase his share of the local supply available for sale. The reverse would hold for price reductions—a nonconforming fiiro would be paying higher prices to producers but could not increase total market purchases in the short run. If higher prices were paid producers and operating efficiency were the same as that of one's rival, high selling prices would be necessary to avoid loss of profits. And if higher selling prices continue, management would be faced with loss of retail outlets, lower management returns than coiqje titers, or a combina- tion of both. Therefore, for both price increases and price reductions, pressing reasons exist for all firms to follow a similar policy. Only vAiere it is clear that sales outlets are available or the end of the contract period with producers is approaching and, hence, additional supplies might be available, will it pay a firm to follow an "aloneness" pricing policy. In such a situation, the most efficient firm clearly has an advantage. Prices to producers can be raised to gain supply while meeting the rival's prices to retailers. Volume can be gained without seriously jeopardizing the position of the firm. On one hand, distributors have an effective and tight control of supply at the primary source, viiich reduces the flexibility of operations of competitors and discourages the entry of new firms. On the other hand, various degrees of 1/ For a brief but more theoretical discussion of pricing in markets with few firms, see Appendix C. vKilLol o& fcns* X-Ciw n:rr:xl a xis aeijxvo'i'- 00 wan aMw e-^aool ' fttc e^ad jptuiix -jr oosrq y;t3-l tSiPlfnt/U ,3B94rrs a^P33ia:rr ;t 111 time 1 • aeoX biova gj xria^ssoeft p.-f hXxrow a^oitc -^nx.CX'sa rfpM , ■ rioijoaberi '■:•-' <'i3<."^ ^.0 Xc t.O I? (^^f % . .... . , ..... ... .„ ^. • fli SfixoJ^iq ■ faaib Xfisxis-soaxixt etr; 33. control of retail outlets through verbal or written agreements, through supply- ing equipment, and by investing in urban and suburban shopping centers likewise reduce the area of competition between distributors. i''' Under such circumstances, entry by new firms is at best extremely difficult and costly in terms of higher paying prices, or lower selling prices, or a combination of both. From the foregoing, a rigid pricing system would be expected, with main- tenance of stability in prices a positive policy. Frequent price changes should be the exception rather than the rule; and -when quoted prices do change, they would be followed by all distributors. It should be pointed out, however, that "quoted" prices could be maintained while "transaction" prices fluctuate, but any radical departures of transaction prices from quoted prices should lead to an adjustment in the latter. Since the area of price competition is minimal, some flexibility is intro- duced by transfeiTing con^jetition to so-called nonprice factors. This may in- volve many different practices such as rendering additional services, increasing the number of deliveries, extending credit, and giving discount allowances. Distributors indicate that in both markets advertising allowances are standard procedure, although more prevalent in the Los Angeles market. This allowance on the part of the distributor takes the form of price discounts below the top of the quoted price of the particular size and grade in return for vdiich the retail store features distributor brands. The general pressure for such advertising concessions allegedly comes from the retailers, especially the larger local independent and national chain supermarkets. Distributors indicate that advertising week-end specials by brands increases week-end sales in given stores by as much as 20 per cent. Presumably, such promotional plans are closely guarded secrets, for if all stores were to feature eggs at reduced prices on a given week end, dealers indicate that only small increases in sales volumes would accrue to anyone except for the increased quantity talcen by customers as a result of a general fall in the price of eggs. The foregoing type of nonprice competition should not greatly disturb the relative positions of the distributors in the market if all sellers were of the same size. Because dealers are not of the same size, and because advertising costs may be absorbed by them in order to gain sales outlets while maintaining quoted prices, however, it is unlikely that they will be entirely passive in 1/ The extent to which investments are a means of obtaining priority as ex- clusive supplier of various food products to retail outlets is a factor which has largely been ignored in food market structure analysis. 3U their reaction to advertising pressure. With rivals committed to the quoted price, advertising is a means of holding outlets and increasing sales, at least occasionally. Finally, competition is often transferred to the practice of supplying equipment in retujm for a sales concession. Separate-unit egg refrigerators are often supplied by the distributor to the retail store in return for the exclusive supplier privilege or for the right to offer for sale the distributor's own brands. The latter is seldom the exclusive brand, and the distributor generally will be required to carton in brands specified by the retailer. The extent and the form of these latter concessions will depend upon the particular store and the bargaining power of the distributor vis-a-vis the store. B. Empirical Analysis of the Egg Pricing Process Price Changes .— Erdman, Alcorn, and Macei' in 1910- analyzed price changes in the Los Angeles market, both with respect to the number and the pattern of changes related to days of the week. They found that from 1935-1939 there were 322 price changes in the Los Angeles market, or an average of 6I4. per year. They did not, however, compare the results with those for other markets. Table 9 shows the number of changes in Los Angeles, San Francisco, and Chicago for the period 1955-19^8. Prices in the California markets changed only 25 to 35 per cent as often as prices in Chicago. In Los Angeles, the average number of changes over the four-year period was 33 per year, or a $0 per cent reduction as compared to the 1935-1939 period. As pointed out in Appendix C, there is a strong presmi?)tion that reductions in the frequency of price changes over time, unless accompanied by reduction in supply variability or a move toward stable demand, is evidence of increasing concentration of control. There are three possible explanations for the much smaller number of price changes in the California markets than in Chicago. First, the Chicago market has much greater variability in receipts, not only seasonally but from day to day and week to week. It is necessary for market prices to change more often, therefore, if the market neither accumulates excessive quantities nor finds itself short of requirements. Second, while the California markets are related to Chicago and move reasonably closely on a monthly basis, as shown in Section in, the distance between the markets makes possible lags in daily price movements. 1/ Erdman, H. E., G. B. Alcorn, and A. T. Mace, Egg Marketir^, in the Los Angiles Area (Berkeley: 19U1), PP. U6-50. (California Agricultural Experiment Station Bui. 656.) ■^e i&i'.:JotS-isq arid- r .eioi?, 3n+ 3i:v ■'tic, ax .n . ' .oozlaaa-fl. :ir^d piX Biaolym alar - *-ntt>. c;0 necl lo 8B woo*. 35. TABI£ 9 Frequency of Price Changes in Large A Eggs in Cases in the Los Angeles, San Francisco, and Chicago Markets, 1955-1958 Year Los Angeles San Francisco Chicago: number of changes 1955 3U 52 1956 39 \6 132 1957 21 U6 129 1958 37 58 161 Average 33 50 iia a/ Chicago changes apply to the high side of the quotation only, " while Los Angeles and San Francisco are a combination of high and low side changes. When a change occurs in both the low and high side on the same day, this is considered as one price change. b/ Changes for 1955 not determined. r.i f . '' ' " "' " " ■ ' ■ '...xrrfw ■ 111! 1 V ■ I V .'it 36. In other words, California market prices need not move up or down with each Chicago movement, since distance provides some protection. In addition, whole- sale and retail markets are not completely free to shift supplies each time a price is slightly out of line. The third reason for fewer price changes in the California markets stems from the manner by which the markets are organized. Generally, the entire week- end quantity sold— about 1$ per cent of total weekly sales— is based upon a single transaction price negotiated between distributor and retailer, usually at the latest by Thursday.^ As a matter of fact, the entire week's sales are sometimes based upon a single price. Distributors and retailers would both wish to main- tain prices without change, at least during the period of the sale. Disregarding special sales, in markets characterized by few firms an atteinpt will usually be made to reduce the area of price competition to a minimum, since the outcome of price wars is uncertain and often costly. Table 10 indicates the magnitude of changes in prices and in receipts in the two markets. Because of the rather low elasticity of demand, prices should be more variable than supply. During 1958, prices in both markets did vary rela- tively more than did quantities. The higher-thanf average August-October receipts and above-average prices undoubtedly reflect the normal seasonal high in the United States average prices. Despite heavier-than-noimal receipts, rjest Coast market prices move up as other market prices rise. A con?)arison of the direction of price changes in the two markets should provide an additional explanation of the statistical results of the daily price analysis in Section IH. Table 11 shows the number and direction of price changes in the two markets for 1955-1958. During 1958, the markets did not seem to be moving together. About three quarters of the changes in San Francisco were price increases as coii5)ared to one third in Los Angeles. The magnitude of the price rises in the Los Angeles market could have equaled those in San Francisco even with fewer changes. But the lags in the two markets are readily apparent, and such lags are not to be expected in markets where intermarket transfers are as important as they were in 1958. This would tend to confirm the 1/ Gray, Leo R. , Marketing Costs and Price Spreads for Eggs, Frying Chicken s, and Turkeys S old in ^ Francisco (t-Tashington: Govl;. Print. Off., 1959), p. o, and Table 3, p. lit. (U, S. Department of Agriculture Marketing Research Report 31h.) ^"'hat constitutes a week end is not specified, but presumably this refers to Thursday through Saturday. However, with most of the larger retail stores open in both markets on Sundays, this may mean Friday through Sunday. 10 a -i** J ' • iis-CK ^iJoa •Li aegffijrfb SI . brts t erf* " fans. , i. avn-T iriW Sit . . - 37. TABLE 10 Indexes of Jfonthly Prices and Plant Receipts of Eggs as Per Cent of Yearly Average, Los Angeles and San Francisco, 1958 1 San Francisco 1 Los Aneeles 1 Month index ox prices as per cent of yearly average 1 inaex or receipts as per cent of Index of prices as per cent of yearly average Index of receipts as per cent of yearly average 1 January 101 9h 105 96 j February 92 99 99 97 1 Uareh 101 101 101 98 96 102 100 99 I May 93 102 9k lOh ' June i 90 xob 69 103 July 99 100 93 lOh ; August 107 101 103 103 September 116 102 110 100 1 October 101 102 105 102 1 November loU 98 106 96 December 102 9S 97 99 ! I t ■ - ■ ■ ■ ' I lOI ■ v« 1 ■ XOj 001 • 5? ll^ ■•■ SOI V. ■ m iiOX 1 I ■■ " . YOi or J soi ■"i 0 J. dOI » 1 TABLE 11 Positive and Negative Price Changes of Eggs in San Francisco and Los Angeles 1955-1958 1 ■' 1 Year San Francisco Los Angeles Plus Minus Plus Min\is 1955 29 29 15 22 1956 3U 12 lU 7 1957 2U 21 20 lii 1958 38 lU 13 26 ■ •■ -•», ■ il M 8f 39. statistical results obtained in Section IH, On the other hand, statistical analysis of the years 1956 and 1957 should yield results more closely approxi- mating those of perfectly associated markets, while 1955 would be similar to 1958. In perfectly coit^jetitive markets and with a large sample of price changes (106 observations in Los Angeles and 199 in San Francisco), one might expect the same nuniber of changes to occur each day of the week. The only logical exception to randomness would be a greater number of price changes on Monday, since both wholesaler and retailer inventories are reassessed on Monday following heavy week-end sales. Presumably, any important chainges in receipts or sales would be known Monday, or at the latest Tuesday. Aside from the possibility of signifi- cantly more changes occurring on Monday, the expectations should be for equal distribution by days. And there seems to be no basis for expecting that a given day should involve significantly more plus than minus price movements. Before testing the hypothesis that price changes are randomly related to days of the week, a further review of the market operations is in order. Except by the cooperative weekly pooling associations, eggs are generally paid for on the basis of prices two days following the day of collection. As already pointed out, by far the largest volvime of eggs is supplied to jretail stores for week-end sales. In order to meet advertising deadlines, weak-end sales between distribu- tors and retailers are made on the basis of midweek prices. In other words, week-end prices to retailers are really determined on Tuesday or, at the latest, Wednesday. "Specials on eggs in San Francisco retail stores were often in effect for a week at a time (usually from about Thursday through Wednesday) ."-i^ With frequent sales lasting as long as a week at a time, the prices at vdiich such transactions are made become extremely in^aortant. Paying prices to producers in the San Francisco market are heavily weighted by a weekly pool, idiile in Los Angeles payments based on pool prices do not apply to more than 5 per cent of total plant receipts. Therefore, from the standpoint of producer receipts, the day upon vdiich the price change occurs is of less inqjortance in San Francisco than in the Los Angeles market. But even for firms which pool, heavy beginning-of-the-week inventories sold at favorable or unfavorable prices on week ends will naturally influence total pool receipts and, hence, payments. 1/ Ibid ., p. 8. .hmd rai'Jn dfii- nO .III r-.ilm ■a 9d foXtr- 3ftc'' ../iio'.: . • . . • •.ri.-t bcUi -i-riQ-xXB .. . rTOeXX''* iol 89*50 Xjteiet c f»wt»d aaXaa f> : • • wlt #jB tTKJ "^pRbaoifT no Jb; lie oi: 119,11:0 • s-xsw aerto^a J* ■ ,;.txW ^~f»,("?«ba9fiiJ.p.V,' rtax;diii, ij" no afjflfli eos c. . • BXsi;.^ : -Hi/, -'i . mi,.: • ,1.'. .i ,^i,xw sb/t©. -as; IiO. The supposition that the price changes should be randomly distributed between the days of the week is not borne out by the data in Table 12. But the e^lanation that heavy week-end sales and weekly inventory reassessment on Monday or Tuesday should result in more price changes on these days, either up or down, is to some extent substantiated. Of the total nuinber of changes, $2 per cent occur on Monday and Tuesday in San Francisco and U6 per cent in Los Angeles, idiereas 1|0 per cent would be expected if changes were randomly dis- tributed. Price Quotations and Transaction Prices .— A sanple of transaction prices was obtained from distributors in order to determine the relationship of trans- action prices to quoted prices. Producers often believe that all or most of the eggs are sold at the high of the price quotation, while dealers often maintain that the largest volume of sales is at or below the low side. From two to eight weeks of actual sales data were obtained from distributors in Los Angeles cover- ing the period from September 1, 1958, to Januaiy 1, 1959. Distributors were allowed to select the weeks for which data were submitted and, hence, the result- ing tiansaction prices might be biased on the conservative side. All sales prices were weighted by the total volume of sales by the distributor. The weighted deviations in relation to the average of the high and low quoted prices for the three most irrportant sizes and grades in Los Angeles were as follows: Large AA -|.0077 per dozen Large A -$,0001 per dozen Medium AA +$,0013 per dozen Most of the Large AA eggs in Los Angeles are sold aljtiost 1 cent below the mean of the spread. Most Large A eggs are sold at the mean of the quoted spread, while Medium AA are sold slightly above the raean.^ In spite of these differ- ences, there is little evidence that prices cluster at either the high or the low quotation. The relationship of the advertising "discount" and the quoted prices is not known. Whether the selling prices quoted by distributors to Federal-State Market News reporters are prices minus the advertising discount or prices before the discount is not known. Whichever price prevails will depend to a large extent upon the relative bargaining powers of retailers and distributors. Whether retailers name a single purchase price to distributors, or whether 1/ This same data was not available for a large enough nuniber of dealers in San Francisco to permit adequate analysis. ... •^S9'X" bJj^i»rf& V^v.- '^aduelfft^^'xs' mess :*r£ :o obis ■ ■ ■ h3. Paying prices in Los Angeles are generally h cents under the high side of the quoted case price, f.o.b. distributor's plant, for Large A eggsj 5 cents under for Medium Aj and 6 cents under for Small A. Assume that a dealer pur- chases 100 dozen eggs and that 65 per cent are Large A, 25 per cent Medium A, and 10 per cent Small A. Table 13 shows that the amount paid for these eggs, using October, 1958, prices, would have been 37. OU cents per dozen. If the distribu- tion had been 75, 22, and 3 per cent, on the other hand, the paying price would have been increased to 38.92 cents per dozen. The receipts for the same 100 dozen are based upon two grade-out percentage classifications and are derived from data obtained from the distributors. The two grade classifications of eggs by percentages represent reasonable outside possibilities. The prices are October quoted prices adjusted on the basis of the transaction prices discussed in Part B of this section. Extra Large AA and A are assumed to be at the same amount under the top of the quotation as applies to Large AA and A. Small AA and A are assumed to be at the same differential as holds for Medium. Sales of Grade B were assumed to be made at the midpoint of the case quotation. Commercial grade prices are not quoted and, therefore, have been based vqpon the sales record of one distributor. Table Ik shows the value received for ICO dozen eggs under the conditions outlined. These calculations indicate that distributor margins should be in the range of 8.5 (l4.5.5ij-37.0U) to 10.1 (U9. 00-38. 92) cents per dozen. Actual margins could be somewhat higher than these, as previously discussed, if weekly inventory losses are seldom experienced. The level of margins in any analysis cannot be evaluated adequately without reference to the level of costs for the inputs and services rendered in the pro- duction and marketing processes under consideration. A cost study, viith the purpose of appraising the margins taken, is a major research undertaking and not within the scope of this study .-i^ Therefore, final appraisal of the above margins must await future work. 1/ The author reviewed a large number of studies of costs of egg cartoning and"candling plants. Data on a number of plants in California were also ob- tained. In the latter instance, the cost data were from some firnis with multiple products where there was considerable evidence that the egg division was carrying only a small proportion of management and overhead costs. Further, no two firms were exactly comparable. Therefore, without very careful analysis and con- siderably more investigation, reliable cost data could not be presented. •1 - &stl& mi. 10*. TABLE 13 Distributor Payment for 100 Dozen Eggs, with Two Assumed Percentages for Grade Classifications and Actual October, 1958, Prices, Los Angeles Grade Per cent gr636 classification^ r Quoted price Paying price Total cost 1 2 1 cents per dozen dollars Large A 75 65 U5.7 lil.7 31.28 27.10 Medium A 22 25 37.1 32.1 7.06 8.02 Small A 3 10 25.2 19.2 .58 1.92 Total i i 100 100 38.92 37.OU TABLE lU Receipts for 100 Dozen Eggs, Assuming Two Percentage Grade Classifications, and October, 1958, Qiioted Prices Adjusted to Transaction Prices, Los Angeles Gr£Ld6 Per cent grade classification Quoted range ' Trans- action j price sil/ 1 Total receipts Monthly- average ! 1 2 1 ! 2 cents per dozen j dollars u 2.5 58.00-61.20 59.6 ! 1 2.38 1.U9 Extra Large A 2 2.5 56.09-59.17 57.6 ! 1.15 l.UU Large AA U8 25.0 53.OU-55.17 5U.1 25.97 13.53 Large A 16 25.0 U8.oU-5o.i7 U9.0 7.8U 12.25 Large B 2 3.5 38.67-UO.67 39.7 .79 1.39 Medium AA 16 12.0 Ul.U3-U5.U3 U3.U 6.9U 5.21 {^dium A 16.5 39.oU-Ul.52 Uo.3 2.02 6.65 Small AA 2 U.o 29.7U-32.00 30.9 .62 I.2U Small A 2 U.o 27.78-29.78 28.8 .58 1.15 Commercial 3 5.0 23.7 .71 1.19 Total 100 100.0 1 f 1 U9.00 U5.5U i a/ Transaction prices are the means of quoted prices minus .0077 for Extra Large AA through Large AA, minus .0001 for Large A, and plus .0013 for all other grades of eggs except grade B. These prices apply to eggs delivered by distributors to retail stores. Ii6. Credit Practices in Los Angeles and San Francisco ,'— Ordinarily, eggs have an inventory turnover every week. More than once-a-week deliveries are not uncommon, so that any given purchase may have only a three-day shelf life. The extension of credit much beyond one week means that distributors are furnishing working capital to the retailing enterprise. Allowing some flexibility to conform to various accounting procedures, two weeks would normally be sufficient tine to make payment without incurring additional office costs. With the normal practice of paying producers every week, distributors would be forced to incur, as a minimum, the costs of providing one week's operating capital. As explained earlier, credit can be employed as a competitive weapon. Instead of price competition, extension of credit could be a useful tool in gaining additional sales outlets without discouraging price maintenance by rivals. But credit can also be a powerful bargaining weapon in the hands of retailers. Retail outlets could demand extension of credit for longer periods in return for granting or continuing supplier contracts to distributors. As a matter of fact, distributors in the Los Angeles area maintain that present credit practices have resulted from use of credit as a bargaining tool by retailers. For Los Angeles, the weighted average period of credit was 32 days. Ihis figure is based upon five distributors' reports for the period October-December, 1958; the sample represents a^Jroximately h$ per cent of the total sales in the market. The nuiriber of days for which credit was extended was weighted by volume of dealer sales. All bad accounts were excluded from the analysis, but some regular credit arrangements extended beyond 60 days. A similar analysis for the San Francisco market resulted in 2U.5 days as the average period for credit extension. Average dealer sales, for those from whom data were obtained, are about 10,000 cases per week in the Los Angeles market. This means that credit is extended by dealers to retailers for approximately two weeks beyond the normal period (normal defined as two weeks). Twenty thousand cases at .'|12 per case (UO-cent average price per dozen for all eggs) amount to $2U0,000 of outstanding credit. At 6 per cent interest, this means credit costs every two weeks. In the long run this cost must, of course, be covered by the marketing firms, and marketing costs are thus increased by this amount. The degree to which present practices have been forced upon distributors by retailers and the extent to which distributors have acquiesced to obtain conpetitive advantage over rivals is not knoim. 'SO 3n "io ab.. +<" tap; a'rrr + c; ■ ( + f" r ts fr; f ■ U7. V. Potential Organization of the California Egg Market^ A, Type of Organization Bargaining associations have been a part of the Los Angeles egg market for many years. There are at least l8 separate small bargaining groups representing in total between 1^ and 20 per cent of local supplies. It is natural that many producers are interested in increasing the quantity of supplies controlled by one or all of the bargaining associations. The major alternative to this is to establish or enlarge a cooperative which now operates facilities on the market. The production and marketing of eggs differ considerably from the systems characteristic of mar^ products where bargaining associations have functioned effectively. Eggs are a product for which market prices are established 5 days a week for 52 weeks of the year. There are no production control programs at present which limit the quantities supplied to a given market or in total. Further, every state produces a reasonably large volume, in comparison to many other products, every day of the year. There are no marketing agreements or quotas by which quantities sold at retail might be controlled. In additi'^n, few egg wholesale marketing firms operate in more than one market j hence, national distribution of eggs by a single firm or by specific brands is completely lack- ing. For these reasons, the advantages of a bargaining association are greatly altered . Assume that a large egg bargaining association in Los Angeles were to replace the 18 existing associations but operate generally in the same manner, nsunely, by confining bargaining to (1) the amovmt vmder quotation prices which producers are to be paid and (2) the method of establishing the grade. Bargain- ing on these points indirectly determines paying prices, but in the final analy- sis selling prices, over which the producers bargaining association has no direct control, determine paying prices. Also, dealer margins — which might be affected— cannot really be controlled by bargaining in a market such as Los Angeles, It is not entirely coincidental that, in July, 1956, and shortly after producer bargain- ing had increased prices received by narrowing the amount under selling prices in the contracts, a 1/2 -cent additional delivery charge was announced by the dis- tributors. Dealer margins were left unaffected, and retail prices were raised 1/2 cent per dozen. Some have stiggested that egg marketing would be improved by direct bargain- ing for paying prices each week or month. Suppose paying prices were established 2/ Much of the material in this section is based on personal observation, dis- cussion, and opinion of the author rather than on formal research. It is be- lieved, however, that these informal procedures have succeeded in highlighting the essential items in California egg marketing. y.-i bsXloniao'.} ="?.l-fT| -t^. ' Mo8 e* 80J at '^..-'f •?t«' tit ^iO iiv.b-.. . . V.-. .. ..^j.i. M * , -:. -r ■«: r- V -si^ w • t U8. every month by bargaining. If such bargaining resulted in the establishment of market pieces above prices plus the cost of movement from competing areas, the market should attract quantities of eggs from these other areas. This should force a reduction in selling prices and, hence, in paying prices. If contracts were actually enforced, this could result in financial insolvency of all dis- tributors in a very short time. Such a system of bargaining could only be effective where supply areas are defined and controlled by the power of some governmental unit. Where outside supplies are not controlled, markets must be free to adjust rather quickly to each other, and a month or even a week may be too long a period of time for a market to remain "out of line," A second factor which mitigates against such a bargaining procedure is the bargaining itself. It is difficult enough to bargain once each year on peach or milk prices or wages J to bargain even 12 times per year would be almost impossible. The time, personality clashes, and present bargaining procedures might well lead to a cont- plete collapse of the process. Present Los Angeles bargaining associations were established when local supplies were short of consumption requirements. It is estimated that southern California might be a heavy surplus area in the near future. Even if outside supplies were controlled, bargaining is quite different in surplus markets than in deficit markets. Certainly much more than the present 15 to 20 per cent of total volume would need to be under the control of the bargaining association under circumstances where quantities available for export exist. Because of the nature of the product, the interaction with other markets, and the nature of the factors requiring change in the Los Angeles market, it seems doubtful if a bargaining cooperative will solve egg marketing and pricing problems. If producers are to participate in pricing and to affect marketing margins and grade differentials, direct participation in procurement, processing, and selling eggs appears to be necessary. B. Potential Efficiencies from Consolidation The monetary savings which stem from any consolidation may be classified under (1) management, (2) procurement, (3) physical plant operation, and (h) sales. There are, of course, other and often unmeasurable factors which have a bearing upon the desirable size and number of wholesale egg marketing firms— for example, the relation between the size and concentration of retail outlets and the size of wholesaling firms. The relation of these to the establishment of a single producer's marketing association will be discussed. Management , — There are five egg marketing cooperatives in the state, three of which carton and candle. In addition, the Council of Poultry Cooperatives, a group of bargaining associations, does inctir some management expense. All the to lawo.j 3 -iO U9. associations except the Council of Poxiltry Cooperatives handle feed and other supplies in addition to eggs. The consolidation of the egg departments of these cooperatives into two firms, one in southern and one in northern California, should result in some management savings. The savings would be small, since a large portion of the present five managers' time must be allocated to the feed and supply departments of each cooperative, and a northern and southern coop- erative would require two full-time managers. XJhether additional assistant managers would be required, over and above those presently in charge of egg departments, is problematical. Consolidation might require additional salesmen or additional fieldmen to maintain quality, maintain or increase supply, and Improve or maintain membership relations; and any or all of these could result in costs above present levels. But reducing present numbers to two cooperatives should result in some net savings in management and accounting as compared to the present situation. It seems doubtful whether additional savings would accrue from further consolidation to a single, state-wide firm. If the market imperfections indi- cated in Sections III and IV are to be corrected, a cooperative or any type of firm procuring, processing, and selling on the Los Angeles market must have a large degree of flexibility and freedom in making daily decisions. Under these conditions, management costs for a single firm might well be as high as for two if the quality of managerial ability required to operate in the Los Angeles market were obtained. Even an assistant manager in a state-wide firm would need management abilities conparable to those required in an independent coop- erative. Accounting and similar overhead items might also be as large for one as for two cooperatives. This is based on the likely assumption that the relaying of information to a central accounting agency located k$0 miles away, together with payments to producers and collections from customers, would inoore than offset possible savings from maximum utilization of office equipment, space, and per- sonnel. In other words, it seems probable that a single cooperative with two units (one in the north and one in the south) would be as costly to operate properly, xd.th respect to management and business office operations, as two separate firms. There are some management decisions which give a single firm some advantages. I'Jhere eggs were being shipped to distant areas, such as Arizwia, coordination of shipping under one management decision could result in some savings. In addi- tion, uncoordinated exports or even imcertainty on the part of separate coopera- tives regarding timing and estination could result in higher costs and lower ■ Xsaoi*ii)bs sixupoa jr. - ..'Ziii bLiKto ezmi* to . .'.r ocf bsxscpioo as antjnuooo* fllfJll ©iftoos iiciiOQ^tisqffifc .tp?( tS{n arU- II vr4# Tol es .iairf ea sd Haw eelpvi,-...;. 00 d ?rO- at ©j-fi- jealtlo .osrit s'T*?"' h^rmv .p'r. -■-.COO' rfMS "TlStto -foe" • ■ ■ > .■ . . . ii ■ ognf T?rvs' ^en anna ■ rJ> • ,/Iuep s-xif' tj-f^fta HI ?,ar • ■'^e" its •hevS- = 5b. prices than under a single management. Another area where the reduction of uncertainty associated with a single cooperative could lead to potential savings is in transfer of eggs between markets. Daily, weekly, and seasonal variation in plant receipts involve quick decisions regarding market destination. Any increase or decrease in daily or weekly inventories requires immediate decisions on prices, storage, oiling, and intermarket movement. While these could be made qtdckly by cooperation between two managers, any delay in adjustment on the part of one or the other firm could be detrimental to both. This leads to an important factor associated with management in a single as contrasted to two independent cooperatives, namely, prices resulting from intermarket transfers. Presumably, a single state-wide cooperative could operate two separate market pools, a northern pool and a southern pool. Assume that lower prices were received in pool A, hence lower paying prices than in pool B. Could this be maintained in the long run and could it be justified? The answer would seem to be in the negative on both counts. Paying different prices for the same homogeneous product to different groups of producers in the same coo;)erative could not be justified unless these reflected cost differences. This, of course, assumes similarity in the two markets in size of producer, distance from market, and plant costs. Iftider such circumstances, paying prices in the long run would be equalized by the single cooperative either through intermarket shipment or by allowing producers voluntarily to ship to their choice of market. The latter, assuming profit maximization on the part of the producers, will define supply areas in line with the discussion in Section III and hence will result in paying prices which reflect costs in each market — hence, equalization of paying prices^/ Price equalization, consistent with cost differences, could and no doubt would take place between the two markets with one or with two firms. Procurement . — Procurement costs would be reduced by consolidation of five cooperatives into one. Some overlapping of present procurement areas exists between the San Joaquin Vall^ Poultry Producers located at Fresno and the Poultry Producers of Central California, with headquarters at San Leandro. Likexdse, some overlapping exists between the Poultrymens Cooperative Association, with an assembly plant at Vista, and the San Diego Cooperative Poultry Associa- tion. The establishment of a single, state-wide association would result in a reduction of collection costs through (l) eliminating overlapping of supply 1/ Equalization of prices does not mean identical prices except at the boundary separating the two market supply areas. '.Tviiy .' 4,i■l^^i3^3e .t' -'0 Jndji;^sat,ft3 a±, > 9S£&- ■ ©no 1. =3: e©onc ,0 bJj/OO 9Vi. 9riT StJsilJWaxft ©cf 4"Jt b 33S'i Slew es ■ sa arii ni zi&ov t'i3**sr &:iT .Jail-j^w !to so W fib rcr o(T bns bXuoo .smttl owj ri*iv TO ,01 essrii ::0n ,n bluoo s 11 09 a ■', erf* *s tfcf©ox9 £ areas, (2) permitting collection routes more closely to approximate maximum capacity, and (3) in certain instances, permitting larger trucks to be operated in collection territories — ordinarily with lower per-unit costs .-^ A northern and a southern cooperative, independent of each other, would have approximately the same collection costs as would a state-wide cooperative. Most, if not all, the economies resulting from operating trucks at maximum capacity and utilizing larger trucks could be achieved equally well with two as with one firm. However, overlapping would likely exist at the boundary between the two supply areas, especially if producers were given free choice of markets. Such overlapping would lead to some increase in collection costs, but this would probably not be significant. Since Fresno and San Joaquin are located near the boundary of the present supply areas between northern and southern markets, a more careful evaluation of the direction in which these eggs should move in order to minimize collection costs would be required. With Los Angeles fast approaching a surplus situation and San Francisco still a deficit, a considerable proportion of the Fresno and San Joaquin volume should move north to San Francisco. Physical Plant Operation . — Clearly, at least one southern plant for carton- ing and candling eggs would be required whether a single association or two separate associations were organized. This follows, for transportation cost to a single plant located in either the north or south would be greater than the possible economies stemming from larger scale plants. Transportation costs between Los Angeles and San Francisco are approximately 1 to 1-1/3 cents per dozen. Although no recent studies of economies of scale in cartoning and candling plants are available, savings of 1 cent per dozen are highly mlikely. A single plant located equidistant between the major markets would require the same amount of hauling as is required to move eggs to either a northern or southern plant. To the costs of operating the single, centrally located plant would need to be added the liquidation costs of most of the present facilities. A single plant located equidistant between the major markets, therefore, appears not to be feasible. A state-wide cooperative does not, in the final analysis. 1/ For a more complete discussion of the effect of these factors on reduction of collection costs, see Hansen, W. J., and R. G. Bressler, The Efficiency of Transportation of Eggs to Connecticut Cooperative Associations (Storrs; 19h^) , 35P' (Connecticut Agricultural Experiment Station Bui. 2U1.) Also, Seaver, S. K., The Effect of Variability in Supply of Eggs Upon Wholesale Marketing Costs (Storrsl 1957), 52p. (Connecticut Agricultural Experiment Station Bui. 331 .) ■ m 9>t- ' ■ ' Xaaolo aiom a3i--;o'i- no iia&Il'ao gitl.'-J- isn't: t»,wmso Qd o& exo0%t idiisf -acfWcT ifflMSq o-sscn^- ,^J.cofiq*»j rsssttfad ■^'isbm/i 'fi Isin >f!Jpw . =-Tq ©dj- y;'isbfl0Od adJ >-'5. rxltiJflol haS fans ofmaflt^ . ©drt i 3Qf Too eesliT.iuL'ff oi lefaio rI ^vm bluoxie. 8?'^ el?:£>i-{i Hsidt? iosiib arii 1: oneoT^ -ad* to rtoxiJiocro-; 'ir *9nf> T ■ sm-B bs^R non t e^r: no^+nssneti ^r; ■ 'JO on Ctdi epwaa ?> ■ - rf? - ■ Si 53. respect to the latter point, San Francisco has two large wholesale firms, one of which~Brentwood — is the exclusive supplier of eggs for Safeway stores and sup- plies no other retail outlet. This means that in terms of market price quota- tions, for example, only one large firm— PKJC— and a number of smaller firms are directly effective in the determination of the level of prices. Los Angeles is characterized by one large distributor, three or four medium-sized wholesalers about one-half the size of the largest, and three or four firms approximately one-half the size of the middle group, followed by a number of quite small operators. As a result, the interrelationships between distributors and between distributors and retailers are apt to be distinctly different in the two markets. And the difference will have a bearing upon market structures. That is, the two markets can be expected to differ in the effect which a change in a firm's selling price will have upon the quantities sold by that firm and upon quantities sold by rivals, assuming the rival's price is initially unchanged. Because of the peculiar characteristics of different markets and the multi- plicity of interdependent factors related to size and econcmic power, no empirical evidence has been marshalled which indicates that intermediate firms should or should not grow at a rate similar to retailers. But with the evidence presented in Sections III and I? on the functioning and general operation of the Los Angeles market, a larger cooperative than presently operates in the market is necessary if many market practices are to be changed. And such a firm should be one which carries on the functions of procuring supplies, operating processing facilities, and maintaining a sales program. VI. Summary and Conclusions In spite of rapidly increasing population, California has substantially reduced its deficit egg situation. Two factors have contributed to this recent move: (l) a 30 per cent increase in output between 19^2 and 1958 and (2) the decline in per-capita consumption of eggs that amounted to sme 9 per cent in this six-year period. With production for sale expanding more than 30 per cent and total consumption increasing only 17 per cent, the natural result was a rapid closing of the deficit gap. The western region has been a net deficit area since the late 1930 's or early 19U0's, due mainly to the increasing requirements of the California markets. In order to obtain sufficient quantities to meet consumption needs, it has been necessary for prices in San Francisco and Los Angeles to be higher than those in ix'x 'iG .jjiuas -io '••9'fmtfn • .Zaoiiq '10 ivV- •so t; -jH etaibsffi-xeini ■fsj'fir "io ■ •b'hs s.ij lo t 9Wd XX tw a: .' nso' ■sup &f(d noitfr/ QVPf! '-rq •TO rc/-ir«j? r.t .(i) OV. -'-Mil 9d O.* MIS _j73 .IV • ••=!-: -.rri YXbiqB'i '■ ■:• •■ I the Midwest by at least an amount equivalent to the cost of movement to western markets. At the present time, transfer costs from the Midwest to California are approximately 6 cents per dozen. This means that California producers have had a net location advantage of about 6 cent per dozen. If California and the seven other western states were suddenly to become an important suiT)lus-producing region, West Coast prices would be forced below midwestern prices by approximately i 6 cents per dozen. A change from a deficit to a surplus situation, then, would ' have a marked influence on intermarket and interregional prices, perhaps reducing California wholesale prices by as much as 12 cents per dozen. In view of the foregoing, it is anticipated that the western region will maintain production nearly in line with consumption requirgnents » Before proceeding to an analysis of San Francisco-Los Angeles price rela- tionships, it was necessary to test whether these markets were related to Midwest (Chicago) prices in the manner expected for multiple-priced markets. Results of correlation analysis between Chicago, Seattle, Portland, and the two California markets for the period 19ii5-1952 and 1953-1957 conform at least approximately to the ejqjectations of a multiple-priced market structure. That is, changes in Chicago prices were accompanied by changes of about the same magnitude and in the same direction in West Coast prices. The Los Angeles-San Diego area was a net exporter to San Francisco in 1958; therefore, this year was chosen for analysis of daily price relationships between the two markets. Daily prices could not be expected to yield as precise results as would monthly prices, because intermarket prices take some time to adjust. However, daily price movements should approach a 1-to-l ratio in two adjacent markets such as San Francisco and Los Angeles. Yet a study of daily price observations for Large A eggs in the two markets indicated important imperfec- tions in terms of average price levels, slope of the relationship, and closeness of fit. The mean of the San Francisco prices (Ii5.38) was U»l8 cents per dozen above the mean of the Los Angeles price. The large unexplained variation in prices (36 per cent) indicates considerable looseness in the price movements. In addition, the regression coefficient indicates that prices in these two mar- kets do not move in a 1-to-l ratio characteristic of multiple-priced markets. Since both California markets have been on a deficit basis and since han- dling costs from Midwest points are the same to either market, it would logically be expected that prices in the two markets should be the same or very nearly equal. While this held true for Large Grade AA eggs, for Large and Medium Grade A i ...-.V tij!,; :) '^fro '".'H'i H*^''3v^'? $5. eggs, San Francisco was rather consistently above Los Angeles dviring the 19U8- 1958 period. Furthermore, market prices differed by considerably more than the l-l/3-cents-per-dozen additional cost of movement between the two markets . An important factor explaining the consistency of the differences was the wider spreads between Grade AA and Grade A eggs of all sizes in the Los Angeles market as compared to San Francisco. The weighted average spread on the high side of the quotation between Large AA and A was U.3 cents in Los Angeles and 1.8 cents in San Francisco. On the low side, it was consistently 5 cents per dozen in Los Angeles and, again, only 1.8 cents in San Francisco. Approximately 2.5 cents of the difference between the two markets with respect to Large A eggs resulted from lower prices of Grade A in relation to Grade AA in the Los Angeles market. The same holds true for medium sizes. If prices of Grade A eggs were raised approximately 2 cents in Los Angeles while Grade AA prices were held constant, differences between the two markets would conform more closely to perfect market expectations. In other words, prices in Los Angeles, the surplus market, would be below San Francisco by about the difference in transportation between the two cities. If prices of Large and Medium Grade A eggs were raised in Los Angeles in relation to Grade AA, the payment system as specified in present contracts might require revision, however, since distributors' gross margins are determined to a large extent by the wide Grade AA margins. If these were reduced, distributors' margins might be too narrow. There is nothing to prevent the establishment of a payment system, however, based upon the inclusion of Grade AA quality eggs in c ontr ac ts . A change in the marketing methods to include both new spread differ - ences and contracts based upon all qualities should be given immediate attention by producers and distributors. Further, the requirement of state or federal graders in all plants, financed jointly by distributors and producers, would be a major contribution toward facilitating the proper functioning of the market . A factor of major importance in the marketing of eggs is the frequency of price changes and the days upon which changes occur. The less frequent price changes in California markets as c ompared to Chicago can be explained in part by less variability in supply and by the "isolation" which distance provides. An important additional reason stems from the differences in the way the markets operate. The two California markets are characterized by a few large firms and by many week-end sales programs. Week-end sales are ordinarily made on the basis of a single midweek price, and distributors and retailers wish to maintain prices without change during the sales period. But irrespective of any special .•. the markets sometimes experienced price movements in opposite directions, since three quarters of the changes in San Francisco were price increases as compared to one third in Los Angeles. Of course, the total magnitude of the price rises in the Los Angeles market could have equaled that in San Francisco even with fewer changes. But the lags in the two markets are readily apparent, and such lags are not to be expected where intermarket transfers are as important as they were in 19$8. In a purely random situation, one would expect the same number of price changes to occur each day of the week. An exception to this in egg marketing would be a greater number of price changes on Monday, since wholesaler and retailer inventories are reassessed at the beginning of the week. There is no reason, however, to expect significantly more plus than minus (or vice versa) price movements on one day than another. The supposition that price changes should be randomly distributed between days of the week is not borne out by analysis. In terms of the distribution of increases and decreases, both markets diverge from results of pure chance . It should be kept in mind that prices paid producers in the San Francisco market are heavily weighted by a weekly pool. Therefore, from the standpoint of producer receipts, the day upon which the price change occurs is of less importance than in Los Angeles. But even for firms which pool, heavy beginning-of-t he-week inventories sold at favorable or unfavor- able prices on week ends will naturally influence total pool receipts and, hence, payments . At present, a large proportion of the eggs in the market are being sold near the average of the spread between the high and low side of the quotation for the respective size and grade. For Large Grade AA, the bulk of the eggs are sold by distributors at 'tt>.0077 per dozen below the midpoint of the spread. Most Large A eggs are sold at the average of the quoted spread, while Medium AA are sold slightly above the average. .•u?w sjoiTiq To smoOiMiO- tin..- 94«j, 'S'jiui'x-ir-Jib Sinog &x9dv bits- Y-^-i^P i^^*' 80 e.-isleafi'ii- *8.:; .'105 -.5. rsjiTism c b!» iii ©no oi / aoil ©/ ~ ,J turret f>/? 3/1 ex 9'X9fiT .:5l99^j sd* gninftf^^ edd f «="!?-^ '.'^g't sts aei ^o+rfav (r.riia? «oiv -so) et'fi.cin as.H^ aoiq ftiom - • ^^^rv >r,rl ., .■ For Los Angeles, the weighted average period of credit was 32 days. A similar analysis for the San Francisco market resulted in 2k. S days at the normal period for credit extension. Average dealer sales, for those from whom credit data were obtained, are about 10,000 cases per week in the Los Angeles market. Two weeks beyond normal credit extension (normal defined as two weeks), or 20,000 cases at $12 per case, amounts to $2liO,000 of outstandirg credit. At 6 per cent interest, this means %SSh cost every two weeks. Producers and dis- tributors should cooperate on a program seeking to reduce the "long time" credit extended to retailers. Eggs are a product for which market prices are established each day, for which there are no production control programs, no marketing agreements or quotas restricting quantities sold at retail, and no fixed minimum or maximum prices in either the buying or selling. Under such circumstances, the advantages of a bargaining association are greatly reduced . In markets which operate in the manner described in this study, bargaining associations have limited effects on margins, prices, or market practices. Even with considerably more than 50 per cent of the volume in the bargaining associa- tion, these factors could not be changed without control of outside sources of supply. Further, prices could not be established by a bargaining association each week in a single market without control over local and outside sources of supply. Because of (1) the present methods of pricing, (2) the lack of any effective control of market supplies, (3) the lack of effective control of mar - gins and prices, and (U) the change in the bargaining situation in moving from deficit to surplus, it is recommended that a consolidated producer's organization be established in Los Angeles to procure, process, and market ^gs . In a market such as Los Angeles, characterized by a number of imperfections, a firm procuring, processing, and selling needs flexibility in making daily- decisions. Under these conditions, management costs (in terms of manager, assistant manager, and other management personnel) probably would be as high for a single state-wide cooperative as for independent northern and southern associations. If a single state-wide association were to become a reality , however, the Los Angeles branch should be given a large degree of flexibility of action . There are some situations in which a state-wide association would have scsne advantages. Where eggs are being shipped to distant markets or transferred between Los Angeles and San Francisco, managerial decision making identified with a single cooperative could lead to potential monetary savings. Presumably, ■y.'iol ibitxss n.i}.'.Sia\ ton hrtov^d- s>fe9-'v/ om' 10 ai'nsi.Tee-f.^s 2^ 3! *yfcu#s z±6rid' asdj; •soxJ-gs'-^: '.tscn iitvoB.'eiAi'f' :o -;isfl ail* n± bos if,-* • -tc.v--'T-.-'^K.fs fls'-ll- ^.i- • ^niXbned bm noleaJxaarasa* at .r^eX-jH -bftr . ; bnA ■•.aoii . 59. would provide reasonably adequate facilities if present plants were operated on a two- or three-shift basis. Neither of these cooperatives has a large volume of retail outlets; hence, in considering the purchase of a private firm, con - siderable weight should be given to the present size and potential growth of the cartoned outlets. 60. APPENDIX A ESTIMATING CONSUMPTION AND PRODUCTION 1, Consumption Estimates for the Western States Egg consumption data are not available for individual states on any continu- ing and consistent basis. Data on production and storage for the United States, however, provide a picture of total disappearance, and these have been used by the U. S. Department of Agriculture to calculate apparent civilian consumption and per-<;apata consumption.-^ The per-capita estimates are plotted in Appendix Figure A-1 for the period from 19hS to 1958. They Indicate that consumption in the United States can be reasonably well represented by two straight-line trends: (1) for 19ii5-195l> a constant level of consumption of about 362 eggs per person per year; and (2) for 1952-1958, a decline of about 5 eggs per year that reduces the per-capita figure from 362 to 327 • It is unlikely that per-capita consumption for any particular state or region would exactly equal the average for the United States. The 1955 Household 2/ Food Consumption Survey included information on egg consumption.— For the western region, the weekly average family purchases reported in this survey have been divided by the number of persons per family and converted to an annual basis. This gives an estimate of 386 shell eggs per person as compared with the United States average of 3ii6 eggs for 1955. The 1955 survey applied only to the spring months, however, and therefore tends to overestimate annual consumption. The 19hB Household Food Consumption Survey included consumption estimates for winter 3/ and fall months as well a:s for the spring season.- This study indicated that average egg consumption for the year, by families, in San Francisco was only 9h per cent of the spring season consumption. With this correction, it is esti- mated that per-capita egg consumption for the western region averaged 362 eggs during 1955' 1/ U. S. Agricultural Marketing Service, The Poultry and Egg Situation (Washington: November, 1958). 2/ U. S. Department of Agriculture, Dietary Levels of Households in the West (Wa'shington : 1957) > Tables 1 and 13. (Household Food Consumption Survey, 1955, Report No. 10.) 3/ U. S. Bureau of Human Nutrition and Home Economics, Family Food Consumption for"Three Seasons in San Francisco, California . « ., 19^8 (Washington, D. G. 191i9), Table 2. (19U8 Food Consumption Surveys Preliminary Report No. 10.) 400 Appendix Figure Al PER CAPITA CONSUMPTION OF SHELL EGGS IN THE UNITED STATES, AND TREND LINES USED TO CALCULATE CONSUMPTION IN THE WESTERN STATES, 1945 - 1965 Trend line used for West S. 375 a> SI cn c 350 o Q. E to 1 325 Q. O O o 300 a. Apparent disappearance (appendix Table 2) United States Household survey 275 1945 1950 1955 Year I960 1965 62. This adjusted estimate is shown in Appendix Figure A-1 and was used to determine the level of consumption in the West as compared with the United States. While several methods of making such estimates are feasible, the present study- has used the very simple procedure illustrated in the diagram: The trend lines for the United States were raised by a constant 19 eggs per capita to provide western regional trends that pass through the 1955 estimate. These per-capita figures were then multiplied by state population estimates to calculate the approximate consumption of shell eggs for each of the eight western states included in the study. A rough check on these procedures can be obtained by considering production and fragmentary shipment data for recent years. California data are summarized in Appendix Table A-1 for the years 1955, 1956, and 1957. For each year, the procedure involves adding together data on production and on reported truck and rail shipments into the state and then deducting sales to the armed forces and shipnents reported from California to Portland. The result is a rough estimate of the volume of eggs available for civilian consumption which, when divided by population, provides an estimate of the apparent per-capita consumption. The estimates thus obtained are also plotted on Appendix Figure A-1 and are found to fall somewhat above the trend line used in the present study. Shipment data are far from complete, however, and the figures on "exports" are especially deficient. Receipts from California are reported only for Portland, Oregon. Shipments to Arizona and Nevada plus exports to Mexico and the Pacific islands probably are substantially larger than unreported shipments into the state. Thus, it seems probable that the indicated supplies available for consumption in California are somewhat overstated. With allowance for this, the estimates are not too much at variance with the trend estimates actually used. Consumption projections for 1965 were made by using essentially similar procedures. Extrapolation of the linear trend in per-capita consumption gives a figure of 309 eggs per person for 1965. This was combined with population to obtain total consumption projections. For California, the 1965 population esti- mates are those published by the California Taxpayers Association.-'^ For other 2/ states, the Series 2 projections of the U. S. Census Bureau have been used.-' y California Taxpayers Association, The Tax Digest Population Estimates of California Counties (Los Angeles: annual issues) . 2/ U. S. Bureau of the Census, Illustrative Projections of the Population by Stales, I960, 1965, and 1970 (Washington: August, 1957), PP- 1-16. (Current Population Reports, Population Estimates, Series P-25, No. 160.) '2 ^'X'" Siti-'^ .V • .'TO "-r , _ ,. ......... 63. APPEHDn TABLE A-1 California Yearly Egg Disappearance and Per-Capita Consumption 1955-1957 1955 1956 1957 mi. .lions of eg gs Production Ii,l4.0li.0 ii,5oo.o Ij., 603.0 ]jnports by train 6.2 5.7 2.ia/ Imports by truck 539.7 Subtotal lj,9U9.9 lj.,930.5 5,050.0 Armed services 153.2 113.3 111.6 Exports to Portland^/ 1.7 13.1 k.k Total U,795.0 UjSob.l k,m.o thousands California population 12,63l4 13,167 13,600 number of eggs Civilian par-capita consumption 379.5 361^.9 355.U .- 1 a/ Estimated. b/ Portland is the only market for which figures on receipts from California are available. I. ex 6U. 2. Production Estimates State-by-state estimates of egg production are published regularly by the U, S. Department of Agriculture and so are readily available for this study. Difficulties arise, however, xd.th respect to production estimates for areas within California and for 1965 projections. As explained in the text of this report, California was divided into three areas for purposes of the present analysis: (1) the normal area supplying the San Francisco section; (2) the area supplying the Los Angeles-San Diego market complex; and (3) the remainder of the state (see Figure 2) . These divisions were made on somewtiat arbitrary grounds. In general, a county was assigned to the San Francisco or the Los Angeles area if it visually shipped more than 25 per cent of its production to the market in questiono Estimates of production are available from some counties, but not on a basis consistent enough to be satisfactory for this study. As a consequence, estimates were derived from census data by counties for 19hh and 19$k. Census totals commonly do not correspond with the state estimates published by the U, S. Department of Agriculture o Since the U, S. Department of Agriculture estimates are based on data from a variety of sources, including the census reports, they have been accepted as the best indications of the correct state totals. Estimates by counties, then, have been made by allocating the state totals to counties in proportion to the census county data. This involved increasing the census data by 27.3 per cent for 19UU and li3.0 per cent for 195U. Area estimates for 1958 involved an alternative method, since census county data were not available for that year. It was originally proposed to allocate the 1958 state total among the three areas by linear projections of the 19Ui and 19 5U percentages of the state's total output. The rapid decline in the relative importance of the San Francisco area between 19hh and 195ii, however, if projected to 1958would have suggested a decrease in the absolute production of this area. Persons familiar with production point out that plant receipts in the area have not declined, so this method was rejected. The procedure followed is crude, but it is believed that the results fairly represent the 1958 situation within the state. Production for the San Francisco supply area was projected at the 195U levels Production for the "rest of state" area was projected on the basis of a straight-line trend in the percentages for that area in 19hh and 195U. Finally, production for the Los Angeles area was cal- culated as the residual between the state total and the projections for the other two areas. 65. Projections for 1965 for the eight western states are simple linear extrapo- lations of the production trends for recent years. For reasons explained in the text, these projections are not meant to be estimates of actual production in 1965 but merely the levels that production would reach if past trends were to continue. In drawing these trends, only the most recent years that appeared to follow fairly regular patterns were used. Production data by states for the 19li5-1958 period are given in Appendix Table A-2. As is indicated in this table, trend projections to 1965 were based on data from 19ii9 to 1958 for Montana, Idaho, Arizona, and Utah; from 1950 to 1958 for Nevada and Washington; from 19hS to 1958 for Oregon; and from 1953 to 1958 for CaHfomia. It may be noted that, with the exception of Montana, the linear trend lines fit the state data quite well, accounting for from 72 to 96 per cent of the year-by-year variance (Appen- dix Table A-3) . For Montana the indicated trend shows a slight decrease, but annual data have fluctuated fairly widely around this trend. -iq Xso t.-t)tte*iJ" Icsq ii: Los^ 3j:j1.t at beJ-ascbcJ: sdsb 9 taie • f 66. APPENDIX TABLE A-2 Egg Production for Eight Western States, 19ij5-1958 and 1965 Projections Year^ Montana Idaho Arizona Utah Nevada VJash- ington Oregon L> all— 1 fornia i millions of eggs 19U5 2U6 280 77 ij38 8lii, ijo9 1 2,302 19I16 230 280 67 U33 ii3 766 LA'S 2,345 19li7 225 307 i 1 81 123 ijO 733 2,3o9 19i;S 230 308 85 U36 1 ij3 721 u52 2,61L|. ! 19U9 227 272 75 I4U2 Uo 788 2,985 1950 2U3 27it 7lj 27 690 525 3,31i4 1951 233 267 81 27 715 pXO 1952 25U 271 80 U3I4 2U 782 552 3j550 1953 253 280 8I4 i|17 27 765 5i;5 14,273 195U 227 29U 96 I4O7 22 839 620 1;,350 1955 228 281 87 380 20 828 616 U,ijOli 1956 232 295 3U8 2ij 908 6U0 U,500 1957 232 299 92 3U8 20 935 62U 14,603 1958 238 302 109 369 18 997 621 U,871 1965^/ 231 327 123 267 12 1,233 790 5,780 a/ Years below heavy line are those on which trends were based, b/ Based on trend extrapolation as explained in this appendix. Source: U. S. Agricultural Marketing Service, Chickens and Eggs—Farm Production, Disposition, Cash Receipts, Gross Income by States, 1957-58 CJashington; April, 1959 J, p. liJ. ' 1 * i CO ! ! ^ \ ■ -'oC - " 1 O's ' Sign 1 c* 1 cots 1 fill 1 .. , .. ■ • c ) 1 r ■ as '. i u Mc- I OS i :iS - t OS • 1 ' r 1 ^ - 1 t ■Of. r 'c.-r APPENDIX TABLE A"3 Summary of Regression Equations Fitted to Egg Production Data for Each State State ■~" 1 a b 2 ! r 1 1 millions of eggs Montana 19h9 239.6 - .527 .02U7 Idaho 19U9 262.5 + 3.812 .8022 j Arizona 19li9 69.7 + 3.152 .8018 Utah 19h9 ij68.1 - 11.861 .8615 Nevada 1950 28.6 - 1.067 .7297 Washington 1950 6I45.2 + 36.717 .9581 Oregon 19U8 + 19.036 .88U5 California 19ii5 l,908.i4 1 +219.28I1 .9637 I i 68 . APPENDIX B DETAILS OF ANALYSES OF EMTEHMARKET PRICE RELATIONSHIPS Aside from the difficulties of obtaining comparable price reports, as dis- cussed in Section in, the testing of the hypothesis that prices in several markets conform with perfect market conditions would appear to be straight- forward. Prices for a selected deficit point can be correlated with prices in the surplus-producing area and the results examined to see if the regression coefficient and the correlation coefficient depart significantly fromlhe expected values of 1.00 and if the differences in prices approximate transfer costs. This is, in fact, the general procedure followed in the present study. When there are random errors in the measurement and reporting of prices in the several markets or in the adjustments of prices to the interdependent set of market conditions, however, this procedure commonly produces estimates of regression coefficients lower than the "true" values. Suppose we compare prices in two markets, X and Y, where both sets of reported prices are subject to random errors. Even if the true regression is 1.00, we would find that the calculated regression of Y on X would yield some value such as 0.90. Similarly, the regres- sion of X on Y would have a value of about 0.90 or, inverting this to express it in the Y on X direction, approximately 1.10. In short, the true value would not be well estimated by the regression procedure and would normally fall some- where between the Y on X and the X on Y regressions — the exact location depending on the distribution and magnitude of the random errors in the two sets of prices. Reported egg prices certainly are subject to random errors, although we have little basis for estimating the magnitude of these errors or their impor- tance in various sets of market price reports. In addition, there is no com- pelling reason for arguing that one or another set of market prices should be considered "dependent" or "independent" in the statistical analyses. All cities — Chicago, Seattle, Portland, San Francisco, and Los Angeles — are in deficit areas; all receive egg shipments from the west north central region, and thus prices at these cities should be determined more or less simultaneously within a nation-wide market context. With this in mind, both Y on X and X on Y regressions have been calculated for all pairs of markets. The results in terras of regression coefficients, standard errors, and correlation coefficients are summarized in Appendix Table B-1. The table also shows the average value for the two coefficients, expressed with Chicago as the "independent" variable. 69 APPENDIX TABLE B-1 Results of Correlating Egg Prices Reported for Selected Markets^/ 1 Chicag 0 prices related to: Seattle Portland San Rrancisco Los Angeles 1955- 1952 1953- 1957 195^- 1952 19^3- 1957 1955- 1953- 1957 1955- 1952 195> 1957 Months included in study (nuii4)er) 9U 60 95 60 95 58 91 60 i 2 i 0.859 0.863 0.865 0.808 0.856 0.875 0.866 0.866 I 1 cents per dozen 1 Average price differential above Chicago 5.81 6.82 6.10 7.20 6.82 5.89 5.85 5.05 ' Chicago independent 1 b 0,907 0.856 0.909 0.805 1.025 0.928 1.017 0.908 1 ^ 0.038 o.ohh 0.038 0.051 0.051i 0.057 0.052 0.057 ' Chicago dependent b 0.9U8 1.021 0.950 1.005 0.836 0.951 0.852 0.955 O.OUO 0.053 0.039 0.058 0.036 0.058 0.036 0.039 1.055 0.979 1.052 0.995 1.196 1.062 1.186 1.058 Average regression!^ 0.981 0.912 0.981 0.900 1.110 0.996 1 1.102 0.978 a/ With the exception of Los Angeles, 1952-1957, all prices are at wholesale level. Prices refer to Grade A, Large eggs in Seattle, Portland, San Francisco, and— for 1955-1952— Los Angeles. Chicago quotations are for Large, Extra. Because of many gaps in wholesale prices for Los Angeles during 1953-1957* "Uie prices used for that period are "paid by retailers." See Appendix Tables B-3 to B-7. b/ Expressed as though Chicago were the independent variable. • i I VuO.o i 240,0 .TiO.Q.-i iiio.p. ' 3»0 -Xa^i-J d<.b.;.(;. j..V;p- $.0 d 8 sod 'j 70. There can be no strong argument that this average is a correct estimate of the true regression, since no information is available on the distribution of errors in the market reports which might provide a basis for weighting the two regres- sions. As noted above, however, the correct regression coefficient would nor- mally fall between the two estimates; if random errors are about equal, the simple average should represait a close approximation to the real relationship. The results of the several analyses are discussed below: Seattle-Chicago, 191*5-1952 ; The regression of Seattle prices on Chicago prices is 0,907; the regression of Chicago on Seattle gives 0.9li8 or, when inverted to a "Chicago independent" basis, 1.055. Thus, the two estimates bracket the expected value of 1.00. The simple average of 0.90? and 1.055 is 0.981. In view of the standard errors of the regression coefficients and the fact that the estimates fall above and below 1.00, it is concluded that prices in these two cities moved in reasonable conformity with the relationship expected for a per- fect market. Seattle-Chicago, 1953-1957 ; The calculated regressions are 0.8U6 and (inverted) 0.979; the average is 0.912. VJhile such a departure could have occurred by chance, it seems probable that the difference between the regression coefficients and 1.00 is significant. Note, however, that even if significant, the difference is not great — a change of ID cents in the Chicago price tends to be associated with a change of about 9 cents in the Seattle price. Portland-Chicago, 191*5-1952 : The calculated regressions are 0.909 and (inverted) 1.052; the average is 0.981. Prices apparently moved in reasonable conformity with the perfect-market relationship. Portland-Chicago , 1953-1957 ; The calculated regressions are 0.801; and (inverted) 0.995; IJie average is 0.900. There probably is a statistically significant departure from perfect-market conditions, but the difference is not great. San Francisco-Chicago, 191*5-1952 ; The calculated regressions are 1.02U and (inverted) 1.196; the average is 1.110. I'Jhile there probably is a statistically significant departure from perfect-market conditions, the difference is not great — a change of 10 cents in the Chicago price is associated with a change of about 11 cents in the San Francisco pidce. San Francisco-Chicago, 1953-1957 ; The calculated coefficients are 0.928 and (inverted) 1.062; the average is 0.996. Prices appear to move in reasonable conformity with perfect-market expectations. Los Angeles-Chicago, 191*5-1952 ; The calculated regressions are 1.017 and (inverted) 1.186; the average is 1.102. There probably is a significant but not large departure from perfect-market performance. ;-«oI©d bat b6&%«Vflt jisrfw. iio Stl^.O fie V I 0 550..i bcia V09.- 30.x ^0 siiXf i bns ftvcxJs" i XiTiioliioo eldBnoaeeu at bavom 8©.t • .00 a.Xdsftoaiso'j nl bsVor ..tfio-tg -ton ^ofw'rsl'IiB ©ai im^' T ' f'-".'!) f'+f '+1?, s ?^ ■'^f '^'^t'oTt' "^^rf^ f '=,ricJ- 6.1: eriX. :^ 9di r, 10 71. Los Angeles-Chicago, 1953-19^7 ? The calculated regressions are 0.908 and (inverted) l.oUSj the average is 0.978. Prices appear to move in close con- formity with perfect-market expectations. It will also be noted from the data in Table B-1 that in all markets the regressions with Chicago independent (and the inverted coefficients with Chicago dependent) are higher for the 19it5-1952 period than for 1953-1957. Moreover, these differences probably are statistically significant. It is possible that the changes reflect the general reduction in the deficit position of California and the western region in recent years. On the other hand, the difference noted may be due primarily to the fact that transportation costs have increased and that corrections for this have not been included in the analyses. In general, the period from 19ii5 to 1952 evidenced an upward trend in egg prices; while the period from 1953 to 195? was characterized by a general decline in prices. Over the same time span, rail rates were increasing—for all agricultural commodities the rates rose from an index of 100 in 19h$ to l6l in 1952 and 179 in 1957, Because of the intercorrelations between prices and rates, the regression coefficients for the earlier period will be inflated; while those for the more recent period will be somewhat deflated. Similar problems are encountered in comparisons of prices in San Francisco and Los Angeles. Results of several statistical studies are presented in Appendix Table B-2. These include comparisons of monthly average prices paid by retailers for Grade AA Large, Grade A Large, and Grade A Medium eggs during the 19U8-1958 period and an analysis based on daily prices paid by retailers for Grade A Large eggs during 1958. For the three studies based on monthly averages, prices in Los Angeles and San Francisco were very highly correlated. Moreover, the regression coefficients depart very little from the theoretical value of 1.00. The averages of the Y on X and the X on Y regressions are 1.0li5> 1.032, and 1.006; in view of the standard errors of the regression coefficients, differences between these values and 1.00 are of doubtful significance. In short, these prices appear to be consistent with the perfect-market concept both with respect to the degree of correlation and the slope of the regression lines. In spite of this, the average levels of prices in the two markets appear to differ more than would be expected on the basis of interraarket transfer and handling costs. For Grade AA Large eggs, the average difference is only 0.55 cents per dozen in favor of Los Angeles; but for the other size and grade classifications, the San Francisco prices averaged 1.76 cents and 2,k7 cents higher than Los Angeles. When these results are compared :it lis aX i&ii rl ■ ; ., .-. - ntes^rene add ■ ; * .-. r = :v<, ; •■ ' ; ■..>■. o?ss n ^. ■■brt6-f.+ bir i£-. -• .. . 00 noiE96i^*i afi; . . .1 .iii to 89§Ei9Vfi adT .00*1 boa fflBu... --.i. 72 ! i APPENDIX TABLE B-2 Results from Correlating Egg Prices in San Francisco and Los Angelesf/ Monthly prices— 19li8-1958 , Daily j prices — i 1958 t Large AA Large A ! Medium A i Large A J. T 0.927 i, 0.95b ' O.9UI 1 0.636 cents per dozen San Francisco dependent 1 I b 1.005 1.006 0.976 0.975 0.025 0.020 0.021 O.0U6 Los Angeles dependent b 0.922 0.9ii5 0.965 0.653 0.023 0.019 0.021 0.031 1/b 1.08U 1.058 1.036 1.531 Average price dependence^^ +0.55 -1.76 -2.1i7 -ii.l8 Average regression^/ 1.0ii5 1 1.032 1.006 1.253 a/ See Appendix Tables B-8 to B-13 for data and sources. Monthly prices are prices to retailers in cartons delivered at store. Daily prices are the low side of the reported range paid by retailers for eggs in cases, f.o.b. distribution plants. b/ Los Angeles price minus San Francisco price in cents per dozen. c/ Expressed as though Los Angeles were the independent variable. xeo.o ccS.X •fSG.O ISO.- dec 0S6.. 73. vd.th intermarket transfer costs of about 1.3 cents, it would appear the Los Angeles prices for Grade A eggs are unduly low and that these relatively low prices represent an imperfection in the market mechanism. The analysis of daily prices for 19^8 reveals a quite different situation. Because of difficulties in adjusting prices between two markets in a very short time, it is to be expected that daily prices will be more variable than monthly prices and the intermarket correlation lower. But if the two cities fonn part of a single market, the regression between prices should approach the theoretical value of 1.00. It is true that the regression of San Francisco on Los Angeles prices yields a regression coefficient of 0.975, but the regression of Los Angeles on San Francisco is only 0.653. Based on the average regression, it appears that changes in San Francisco prices are about 25 per cent larger than in Los Angeles; and this difference seems to be clearly significant. Moreover, San Francisco prices averaged ii.2 cents per dozen higher than Los Angeles for the year. In other words, the prices observed in these two markets during 1958 are quite inconsistent with the single-market ccaicept with respect to the slope of the regression, the levels of prices, and the scatter of observations around the indicated regressions. In view of the fact that Los Angeles-San Diego apparently became a surplus area in 1958, it might be supposed that the statistical results merely reflect the relationships expected for a minor surplus r^ion that at times imports from the midwest and at others ships its surplus to San Francisco or to Arizona. Under these circumstances, however, the changes in Los Angeles prices would be expected to be higher than for San Francisco rather than lower as indicated by the analysis. The observed differences, therefore, must be explained in terms such as the market structure and nature of competition. For the purposes of this appendix, we merely note that daily prices in 1958 did not conform to perfect single-market expectations and leave the further exploration of the bases for observed departures to Section IV of the report. ■ K J- j^ J.. --z "'tlib si tup E ^■iBV A ax. tioA'ssm ov.7 ae: '.s it no be ■ . ■ 13 q 5S ii "ids tol ffflffj- TTjftgiai ■:fi 3aoii&7xsiyf.o noe ad* baa "i "ir^^Fnl r?T!^t rt'-'. sAi tO: ion bi6 : / APPENDIX TABLE &-3 Tfliolesale Egg Prices, Grade A Large, by Months Seattle, 19145-1957 Year Janasr^r ■ Febru- ary ^larch April M June July August Septem- ber October Novem- - ber Decem- ber cents per dozen 19hS hi. US U2.57 I4Q.OO Uo.oo liO.OO li2.31 51.88 55.17 55.83 c?6 7? po. < v.' 65 65 op, 05 1.5 7c; 1950 33.99 1|0.20 I1O.72 Uo.oo 39.^9 111. 00 li8.05 50.68 50-90 5L ]6 6l 77 DX. c / op. 70 1951 19.32 U9.55 51;. 62 51i.99 56.38 56.92 58.26 63.62 68.21 66,00 68.00 56.80 1952 U9.98 U3.60 li3.83 li5.26 U3. 62 60.73 62. 2]* 60.88 60,50 58.78 58.19 55.36 lj.9.21 55.27 58.59 58.02 58.59 6U.85 67.I4O 69.21 68,25 62.29 58.50 195U 52.50 51.58 U8.15 iai.77 li3.50 104.89 51.38 50.1a 146.36 i4l.07 I4O.82 39.1i0 1955 lj2.29 16.92 U7.I1I I4I1.31 U5.17 I45.68 U7.55 53.0lt 56.62 53.II4 52.15 59.92 1956 52.75 144.88 U7.1i7 U5.25 l4ii.78 l4li.30 U7.6I4 1*9.10 52.53 l49c97 I47.60 l4i4.60 1957 U3.61 iil4.68 I42.93 39.73 36.77 38.15 U5.05 50.73 51.60 52.714 52.66 53.71 Source: U. S. Agricultural Marketing Seanrice, Dairy and Poviltry Market Statistics (Washington? annual issues). APPENDIX TABLE B-h ^ifliolasala Egg Prices, Grade A Large, by Months Portland, 1916-19^7 ■ Year January Febru- ary piajCCu. riay Saptexn- NoYam- bfii? Decam- bs57* cents 0 3r dozen I9li5 U7.U6 h2.57 Uo.oo Uo.oo llD.OO ii2.31 US.hh 51.86 55.36 56.15 57.50 56.72 1916 lj.6.39 39.1^5 140.00 Uo.oo Uo.oo 142.53 U6.3U 51.81; 58.05 60.00 59.16 60.02 19U7 53.U3 15.68 U6.36 50.59 53.U3 5ii.67 61.95 6U.67 68.62 67.65 61.56 65.32 19U3 56.82 51.50 52.83 52.73 53.00 51t.6l 58.99 63.23 61i.57 65.19 67.35 6ii.67 19U9 53.08 51.96 li9.76 50.17 53.06 5U.85 60.73 62.U9 6ii.96 63.95 56.80 12. 98 1950 39«23 IjO.Ol 39.75 39.99 li2.96 50.02 52.35 53.65 55.3U 60. U; 66.>i2 1951 51.61 50. 7U 55.59 55.U5 58.51 60.00 61.10 6ii.78 69.61 67.63 68.50 58.9U 1952 50,20 U5.15 Ui.38 li6.95 U5.83 ii7.07 61,91 61*.5o 61i.l2 63.52 60.56 60.56 1953 56.77 u9.34 57*59 Co ot 014.. 0 1 1951i 52.78 52.03 U7.7U U5 .59 U5.00 U6.32 51.86 U9.9U U7.05 10.38 lil.90 Uo.iii 1955 U2c3l 16.53 U8.ia U7.1U U6.76 U6.73 50.U5 52.22 55.U3 53.79 52.68 59.31 1956 5U.08 U6.60 50.68 U5.9U l4lt.27 li3.U8 U8.58 51.70 52.71 U9.5U li7.23 U6.62 19$7^ I4J+.25 U5.2U U3.12 39.77 36.70 37.95 U5.23 51.00 U9.U5 50.00 51.00 5U.00 a/ Reports AA as -well as A prices for 1957. Source: U. S. Agricultural Marketing Service, Dairy and Poultry Market Statistics (Washington: annual issues). APPENDIX TABLE B-^ VJholesala Egg Prices, Grade A Large, by Months San Francisco, 19li5-1957 Year Jstnuary Febru- ary March April May June July ! August Septeia- ber October Novem- ber Decem- ber cents par dozen li7.96 U3.07 llD.50 Uo,5o UO.50 1^2,81 U6.9U 52.10 55.36 56.15 57.50 56.72 hl.6h la. 36 U0.50 Uo.50 140.50 U2.90 it6.95 52.59 60.13 62.76 61i.3l; 65.37 1 Oli7 56.U5 Ill4,.l8 U7a9 50.80 5U.50 55.02 61;. 91 66.69 71. Uo 68.75 65.75 67.11 57.51 50.96 52.90 53.61 5U.25 60.15 65.8I1 67.25 67.68 71.20 70.03 62.58 51.20 U7.25 U9.25 51.25 52.U8 58.20 60.60 66.10; 65.30 58.75 U5.73 ia.58 38.25 38.25 38.25 38.25 39.02 U6.00 50.25 52.85 55.39 61.39 67.15 -1-7? -L 53.70 50.0lt 53.57 55.15 58.U8 58.87 60.82 67.82 72,88 72.03 71.35 59.85 51.02 i;3.20 U2.76 I46.00 10^.38 ii6.99 60.77 62.95 6U.U8 67.i;8 65.89 62.00 1953 56.67 U9.32 53.ia 56.1U 56.11i 56.50 62.96 68.19 70.81 69.18 63.21 61.00 19Sh 56.00 52, U2 l4li.0U li3.00 la.oo I43.68 50.71 i;9.11i 1;9. 81 1(4.62 U5.75 la.io 1955 iii;.05 Ii9.l6 U5.09 ia.liS ia.19 UO082 i;3.65 50.17 55.71 52.81 51.10 57.90 1956 53.05 i4lic25 U5.55 la. 81 U2,66 li2,12 U5.21 U6.59 50.97 U9.50 50.U5 U7.66 1957 la. 82 UO.87 37.02 37. lU 35.59 36.15 lj.0.86 U8.00 U9.U0 50.85 a/ Not craaputed because of insufficient daily price data. Source: U. S. Agricultural Marketing Service, Dairy and Poultry Market Stati:^bic3 (Washington: annual issues) . APPENDIX TABLE B-6 Wholesale Egg Prices, Grade A Large, by Months Los Angeles, 19l<5-1957 Tear January Febru- ary March April May June July Ac^st Septem- ber October Novem- ber Decem- ber cents per dozen 19U52/ li8.09 1.9 OA l,n tin 1*D.9U 52.10 55.36 56.15 57.50 56.72 19U62/ U7.53 111 V7 U7.31* 51.31* 50.63 60.00 60.00 58.62 50.27 U?. O CC ■JO 55.39 05.10 71. 71* 70.1*8 £ ^ tO 66.78 69.55 19U8a^ 56.80 C-\ Aft pi*.U> 50.07 Co /CI. 59. oJ* OU..i.O o7»oo 72.55 73.1*3 65.00 19U9*/ 58.li2 liO ft A 53.55 ci. oft 51*. 7^ 59.39 02.59 67.21 63.93 57.78 U5.00 1950^ 39.63 ilt(c. ■5ft ll. ■art oQ 1.1. Qfl I*?. 00 52.16 55. U9 61.61 65,08 1951^ Ij9.30 U8.62 52.22 53.08 56.20 56.35 56.10 61.76 66.38 c/ 57.05 1952^ 1*5.92 39.95 1*2.17 1*2.51 li0.5U 1*1*. 29 55.26 56.21* 56,98 57.50 55,10 U8.70 55.50 56.10 56.30 57.60 60.90 6U.20 66.10 66.60 59.70 58.50 5U.70 52.60 1*5.60 1*3.10 1*0.80 1*2.10 1*7.60 1*5.00 1*3.70 1*3.20 1*0.90 38.80 1955^ 1*0.80 h7.U0 U7.20 1*2.00 1*2.00 1*2.00 1*2.00 1*7.1*0 51*. 70 53.00 50.20 55.00 1956^ 52.80 U7.Ii0 ■ 1*6.90 1*3.1*0 la. 60 38.90 1*1.00 1*1.20 1j5.00 1*5.70 1*6.00 l*2.l»0 1957^ 38.60 37.50 35.1*0 35.1*0 31*. 3£) 33.60 38.60 1*3.00 1*7.00 1*8.90 50.10 50.10 i ^ Grade A Large, lAolesale prices, consumer grades, 191*5-191*9. ^ Grade A Large Hlniniuni, 80 per cent A quality, wholesale prices, consumer grades, 1950-1^2. c/ Not cooputed because of insufficient daily price data. d/ Because of lack of sufficient wholesale price data, especially for 1955 and 1956, the 1953-1957 data are prices to retailers, f.o.b. distributors' plants, in cases. Soorees: 191*5-1956—0. S. Agricultural Marioeting Service, Dairy and Poultry Market Statistics (Washington: annual issues). 1957 — U. S, Agricultural Maricetlng Service, and California Department of Agriculture, Bureau of Market News, cooperating, Loa Aafieles Monthly Average Prices (Los Angeles: Federal-State Market News Service), (Annual is sues.) APPENDIX TABLE B-7 Wholesale Egg Prices, Large, Extra, by Months Chicago, 191(5-1957 Year January u— ary 1 March April May 1 Jime cents r July sr dozen Aupust Septam- bar October j Novejn— 1 bar i bar U3.35 38.86 37.19 37.20 37.20 38.85 m.7i U6.17 Ul;.69 U9.08 50.91 U0.31 35.79 36.59 36.52 38.83 37.78 38.97 U3.30 53.01 55.83 55.05 Ijl.7U lil.63 U5.10 U6.1i7 lih,h2 h6,3S 50.27 52.82 60.73 62,01 60.90 59-1111 >7.-4i; U7.51 16.92 U6.1;3 U6.U; U6.15 U7.96 53.11 56.50 61i.5l 63,60 51i.67 U6.27 li3.U9 U5.05 U8.32 U8.27 li9.28 53.33 55.37 62.82 56.36 52.69 32.57 33.0U 36.U7 35.57 32.12 3luS9 U0.57 h2,lk 52.26 57.95 58.57 58.18 U2.75 2i5.09 U7.73 k7.9k 1;7.99 51.98 52.06 60.16 63.88 68.1i7 67. U8 li9.85 ll0.02 36.72 39.17 Uo.81 36.27 liO.81 57.63 66.73 57.12 U9.25 U5.58 hk,Sl 50.65 50.U2 li8.79 51.U0 5U.1;2 59. U9 61i.82 63.39 55.1*2 U8.00 U7.28 U5.03 Uo,86 39.00 35.59 35.28 1.5.25 1;2.U0 1*5.83 U2.02 33.96 31.77 33.1i5 U2.37 a. 77 37.10; 3h.6h 36.98 37.Ja li7.27 52.31; 50.92 50.56 51.51 Ui.80 39.9lt 39.79 39.31 37.18 la.67 38.57 U7.1;2 !a;.57 1*0,13 31;. 61 30.91 32.20 30.67 32.32 29.13 29.91 36.16 ia.i9 Ii7.2l; 52.67 50.03 1;3.71 19l;52/ I9I162/ 191*7^ 19l;8^ 191*9^ 19502/ 1951^ 19522/ 19532/ 19552/ 1956°/ 1957^ a/ Large, Ebctra, 1 and 2 wholesale prices, wholesale grades, 19U5-U6. b/ Largej Extra, wholesale prices, wholesale grades, 19li7-19U9. c/ I"Iiniraujit, Extra, 60 per cant A quality, Trfiites, wholesale prices, wholesale grades, 1950-1956. d/ Not coTfputad because of insufficiant daily price data. 9/ Large, Extra, whites, wholesale prices, wholesale grades, 1957. Source: U. S, Agricultural Marketing Service, Dairy and Pciltry Market Statistics (Washington: annual issues). APPENDIX TABLE B-8 Large AA Prices to Retailers, Delivered in Cartons at Store (Average Daily Price Quotations) San Francisco Month 1958 1957 1956 1955 1951} 1953 1952 19^1 J:Z2V January 50.7 1*6.6 60.U 51.3 63.0 63.2 57.7 ?9.0 00. □ February ii6.0 U5.9 51.U 55.3 57.5 5U.8 U9.li -? f 57.7 March 50.6 U2.7 53.0 51.2 50.8 58.9 li9.8 59.5 April liS.O U2.7 1;9.3 U8.0 U9.0 61.6 53.0 6l.k 0 0 May U7.2 I4D.U W.l h9.$ U9.0 61.6 51.U 65.1 I1J1.8 June I45.8 I4I.8 U8.8 52.5 51;.U 6I1.2 51i.5 66.1 /Vl 8 OVJ.O July 51-5 U8.2 52.2 5U.2 6i;.2 72.1 67.5 68.3 68 0 August 55.1i 53.1 51*.l 59.6 58.7 76.6 71.8 7U.7 62.2 69.8 75.U Septenijer 59.1 5U.1* 57.7 67.0 59.9 80.3 7U.5 79.lt 67.8 78.1 80.0 October 52.7 56.0 56.3 60.9 51.5 78.2 7li.O 79.2 70.3 75.8 82.5 November 53.2 55.2 55.U 58,U 52.3 69.0 71.2 76.6 68,1 65.1 78.9 Deceniber 51.2 59.3 52.7 6U.8 li7.1 69.6 67.7 65.9 72.U 51.9 76.5 Source: U. S. Agricultural Marketing Service, Dairy and Poultry Market Statistics (Washington: annual issues). APPENDIX TABLE B-9 Large AA Prices to Retailers, Delivered in Cartons at Store (Average Daily Price Quotations) Los Angeles Month 1958 1957 1956 1955 195U 1953 1??2 1951 1950 1949 ±^40 January 53.7 U8.0 61.8 U9.7 63.0 6U.O 5o.o /Cr\ 1. 70.9 A"? 7 February 50.9 U7.0 56.2 56.2 61.7 57.7 52.9 59.5 40.0 OX. / Ao 7 0<£. / March 51.5 Ul;.9 55. u 55.5 54.6 ou.l 51.5 I. A 1. 40.4 tiA ft Ao T 0<:.x April 51.0 Ui*.9 52. u 50.5 52.1 /CI. c* 54.0 l.t ft lift 0 ?0.7 c;o )i May U8.5 U3.4 50.6 50.5 Of .i/ lit; 1. 4P.4 An 7 June 146.0 U2.5 U7.9 50.5 50.2 65.0 53.0 07.0 III .ip A). A A)i 0 04. y July 1;8.1 U7.5 50.2 50.5 5o.3 70.0 04. 0 00. { 57.1 Aft )• 00. U Aft 7 00. { August 52.5 52.0 50.6 55.9 5U.0 73.2 68.0 60.2 72.5 7U.0 September 55.9 56.0 51i.U 6U.5 52,5 75.1 71.1 77.9 65.5 76.U 78.0 October 5U.1 57.8 5U.7 63.U 52.0 75.5 72.0 77.5 67. U 76.1 81.7 November 5U.3 59.1 55.0 60.9 U9.8 68.7 70.9 78.2 70.6 70.0 82.5 December 50.2 59.5 1 51.9 6U.6 U7.6 67.9 67.7 71.5 76.2 56.3 77.3 Source: U. S. Agricultural Marketing Service, Dairy and Poultry Market Statistics (Washington: annual issues). APPE2IDIX TABLE B-10 Lai^e A Prices to Retailers, Delivered in Cartons at Store (Average Daily Price Quotations) San Francisco 1957 1956 1955 195U 1953 1952 1951 1950 19li9 19U3 •Taniiarv li6.3 58.5 U8.0 59.5 60.2 55.3 58.0 1j5.8 66.8 61.9 U5.1i ii9.8 53.2 55.9 52.8 U7.2 51^.3 ii2.5 55.U 55.7 March lii.5 51.0 U9.1 li7.5 56.9 1*6.8 57.8 i;2.5 51.2 57.5 April lj6.9 Ul.2 U7.3 li5.5 U6.5 59.6 50.0 59.U lj2,5 53.5 57.9 May U5.8 39.6 it6.8 U5.6 lUi.5 59.6 U8.U 62.7 U2.5 55.5 58.5 June I4.O.2 li6.1 I46.3 lt7.2 60.0 51.0 63.1 it3.3 56.7 58.6 •Tulv U8.7 Ui.9 i;9.6 U9.2 5U.7 66.5 61i.8 65.1 50.2 62.0 6U.U August 52.0 51.1 55.7 53.1 71.7 67.0 72.1 5U.5 6U.7 70.1 Septeiriber 56.9 53.U 55.5 61.2 53.8 7U.3 67.7 77.1 57.1 70.7 71.5 October U9.8 55.0 5U.0 58.3 U8.6 72.7 70.5 76.3 59.6 69.5 71.9 Noveiriber 51.0 57.3 55.0 56.6 U9.8 66.7 68.9 75.6 65.6 63.0 75.1 December U9.9 57.U 52.2 63.U I45.I 6U.5 65.5 61i.l 71.U 50.0 7U.3 Source: U. S. Agricultural Marketing Service, Dairy and Poultry Market Statistics (Washington: annual issues). APPENDIX TABLE B-11 Large A Prices to Retailers, Deli-wered in Cartons at Store (Average Dailj Price Quotations) Los Angeles 19^7 rV' ., I9«i6 1955 195) 1 1950 ■ 19k9 19k3 ii3.1 56.8 kk.B 58.6 5? 8 A), fl Oq..O /to Q 02.0 X W w A iiKiM V L6.1 k2.o 51. k 51- k 56.6 51 a )i7 9 57.5 March li7.1 39.5 51.2 k9.6 58 5 pl.O 57. k April U6.6 39.5 k7.k k6.0 k7.1 59-1 57 fi, 111 0 38.6 k5.6 k6.0 kk.8 59-3 U-L.U June 38.1 k2.9 k6.0 k6.1 60 6 ka ^5 ox. J P7.0 59. U July li3.1 k5.0 k6.0 51-6 6k 9 59 a 03. J 02.0 August k8.0 Ii?.5 k5.7 51.U k9.0 68.2 63.0 67.5 52.5 67.5 67.0 Septeaiber 5l.lt 51.5 U9.5 58.7 k7.7 70.1 6k.5 72.0 53.k 69.5 69.1 October U9.1 53.U 50.2 57.0 k7.2 70.6 65.0 71.5 57.0 66.k 71.2 NovBiriber 51i.6 50.5 5k.2 kk.9 63.7 63.9 72.6 6k.8 61.2 72.3 Deceufljer 55.0 k6.9 59.0 k2.8 62.5 60.6 65.k 72.2 k9.8 70.7 1 Source J U. S. Agricultural Marketing Service, Daiiy and Poultry Market Statistics (Washingtoni annual issues). APFENDU T&BIE B-12 Medium A Prices to Retailers, Delivered in Cartons at Store (Average Daily Price Quotations) San Francisco rlXJllJjLL 1Q^7 — . 1952 1951 1950 19U9 19U8 )i7^0 40. J PI ./ 51.9 50.3 4I.9 64,8 59.7 111 }i7 )■ J. ft 1 U3.5 52.9 4O.5 53.4 52.1 Ii7 n ^7 1 )t7 C 5U.U. U2.7 50.1 4O.5 49.0 -.ft W 51*.5 ■^7 n It's n 47.1 56.9 39.5 49.5 5U.6 111 < liA ft U5.0 oG.o 39.1 52.2 55.0 June 111 T 5o#7 45.3 61.2 38.8 52.1 55.1 ouxy lin ft WJ*0 "57 ft 47.0 0J..0 /^i ef ol«5 62 .0 47.1 58.6 60.9 August i»2.2 U7.8 Ul.8 65.3 59.0 65.0 50.7 58.3 68.1 Septeniber U7.3 U6c5 53.9 38.0 62.5 58.5 66.1 U9.9 62.9 67.5 October U2.9 U8.6 U9.1 32.2 60.7 60,6 65.2 51.1 56.5 67.7 Noveinber li3.5 53.3 li7.6 U7.9 36.8 56.5 56.8 65.0 58.U 50.2 70.3 December li6.3 51^.3 19.0 6l.lt U0.9 60.6 61.9 57.8 69.0 U3.1 71.3 Sources U. S. Agricultural Marketing Service, Dairy and Poultry Market Statistics (Washington: annual issues). APPENDIX TABLE B-13 Medium A Prices to Retailers, Delivered in Cartons at Store (A-rarage Daily Price Quotations) Los Angeles Month 1958 1957 1956 1951; 1953 1 1952 1951 1950 1919 19h8 January U6.U 39.2 5U.1 )4l.U 5U.3 55.2 ii7.6 52.2 39.8 60,k 59.8 February U2.7 39.5 li7.6 U8.8 52.7 U8.8 li2.3 53.0 38.8 52.2 53.2 March l|l;.l 36.6 U8.3 li8.3 hh.2 56.3 ia.9 57.2 38.5 hQ.k 55.U April U3.3 35.9 U2.9 Ul.5 U2.1 56.9 U5.0 53.2 38.3 1+9.1 52.it May 38.5 3U.2 39.6 I4I.0 39.1 53.9 la.o 57.5 36.5 51.8 51.1 June 35.5 33.0 36.1i liO.8 39.2 56.6 ia.3 57.5 52.7 55.1 July 35.5 3U.9 37.1 U0.5 1*2.0 58.1< 51i.6 57.7 U3.6 57.8 58.1 Aiogust 39.3 itl.l 37.6 I4I.U 36.9 61.2 53.U 59.2 hS.k 59.0 60.7 September h2,o hh.6 39.3 U8.6 35.0 62.7 52.3 65.3 U7.7 60.2 66.5 October 10.3 U7.l|. ia.3 U9.9 32.6 60.0 53.8 62.it U9.5 58.2 6U.3 November la.i 50.1 lt3.9 I16.U 35.0 Sk.h 5U.3 62.6 56.6 50.6 66.0 December la.o 51.0 I4I.9 5U.8 37.0 56.1. 56.6 59.U 68.6 U2.9 65.3 Source: U. S. Agricultural Marketing Service, Dairy and Poultry Market Statistics (Washington: annual issues). 85. APPENDIX TABLE B-lli Daily Prices of Grade A Large Eggs, in Cases, San Francisco and Los Angeles, 1958f/ 1 San Los San Los San 1 Los I San Los Francisco Angeles Francisco Angeles Francisco Angeles 1 Francisco Angeles cents per dozen 52 ii9.5 ii2 P7 •> li'^ UP Ux 30.5 52 ii5.5 li2 J7'P li'^ py-p 1.1 Ux 1/1 I? 30.5 ■^0 P7«P li'^ 39 .p 1.9 U<: 30.5 L5 jy "P ll"? Up pO.p 1.9 Ut 1/1 Cf li'?.5 P7 'P 111 Up po.> 1.0 Ut 1/C Ef ill. 5 UX. p li-^ UP 1.1 Up 1/1 Cf no U-L'P li'i Up po.p 1.0 Ut 1/t li'?.5 UO 111 Ii9 U-i pO«p 1.1 u3 ■3/C Cf 36.5 )n < • ? no 111 i; lip Ut po.p 1.1 u3 37'5 )\-\ < • p )iR lo 111 c lip Ut •aR po. !? 1.1 u3 37 0 lift 111 li ll9 Ut •JR po-P 1.1 Up 37.5 hi 5 uo 111 cr 111 Up pO'P 1.1 UP 1*7 1^ 37.5 u • p )iA yo 111 1? yi. p 111 Up iR poo 1. 1 Up I"? 37 0 lili 14.14. Ii2 5 llD 111 < yx. p 111 Up •?R cf po.p 1.1 Up 17 d 37 0 uo 111 tr 111 Up pO- P 1.1 Up 1*7 ^ 37 0 111. 5 In < 111 Up po . i) 111 17 t 3 f .p 111 5 hfi ho ill 5 ux.p 111 UP P f • P Ml UU 17 Pf -P Jill 111. 5 tio Ii9 < 111 Up 17 t P( »P lili UU 17 PI -P li2 ill 5 no il<: . 5 ll? u<^ 17 C P 1 'P lit Up 17 If 3 1 0 li2 111 5 Ji2 < • p 111 U-L 17 P f • P liCj Up 17 If 3f • p I|0 Ii9 < lll Ul 17 1; PI -P UP 37.5 ilU • 5 tio Ii9 C 1.1 U-L 17 C Pf .P Uo lQ If 30.5 Ii9 C .p lll UJ. 17 d Pf • P uo ifl cf 30.5 u> Ii9 C Ill U-L in cf I. A UO 39.5 no 1;5 1|2.5 ill 38.5 ii6 I11.5 111 U0.5 li5 ii2.5 hi 18.5 po.p h6 hi 5 UX.p Ui I1O.5 U5 U2.5 Ill 36.5 U7 lil.5 111 U3 1^0.5 1*1 36.5 I18 ll2.5 Il2 I10.5 li3 U0.5 llO 36.5 Ii8 li2.5 li2 U0.5 ii3 I1O.5 39 36.5 I18 U2.5 Ii2 I1O.5 J43 I1O.5 39 36.5 I18 I12.5 li2 U0.5 li3 U0.5 39 36.5 I18 I12.5 tl2 I1O.5 U3 39 36.5 as U2.5 U2 I10.5 1*3 iio.5 39 36.5 118 i»2.5 if2 I10.5 ii3 I1O.5 39 36.5 118 l|2.5 ll2 I10.5 U3 U0.5 39 36.5 I18 U2.5 Jl2 I10.5 li3 li2 36.5 U8 J42.5 ll2 39.5 U3 I1O.5 li2 36.5 Ii8 U2.5 a2 39.5 li3 U0.5 111 36.5 US U2.5 Il2 39.5 U3 U0.5 111 36.5 U8 ll2.5 (Continued on next page.) 86. Appendix Table B-lli continued. San I Los Francisco j Angeles ' San j L^i [ j Francisco | Angeles i Francisco j Angeles hQ i»8 li8 1»8 hQ hB k9 ?1 53 53 53 55 56 56 55 55 56 5U li2.5 1|2.5 i»2.5 1*2.5 1*2.5 1*2.5 1*2.5 1*2.5 1*2.5 1*2.5 1*3.5 1*3.5 1*5.5 1*5.5 1*5.5 1*5.5 1*6.5 1*6.5 1*7.5 1*7.5 1*7.5 U7.5 51* 51* 53 52 50 50 1*9 hS 1*7 hi 1*7 1*7 1*7 1*7 1*7 1*6 1*6 1*5 1*5 1*5 1*5 1*5 1*5 1*5 cents per dozen 1*7.5 1*6 1*7.5 1*6 1*7.5 1*6 1*7-5 1*6 1*7.5 U6 li5.5 1*5 1*5.5 1*5 1*5.5 1*5 1*5.5 1*5 1*1*. 5 1*5 1*3.5 1*5 1*3.5 1*5 1*3.5 1*5 1*3.5 1*5 1*3.5 1*5 1*3.5 1*7 1*3.5 1*7 1*3.5 1*7 1*3.5 1*7 1*3.5 1*9 1*3.5 1*9 1*3.5 1*9 1*3.5 1*9 1*3.5 1*9 1*3.5 1*3.5 U3.5 1*3.5 1*3.5 1*3.5 1*3.5 U3.5 1*3.5 1*3.5 1*3.5 U3.5 1*3.5 1*3.5 1*3.5 1*3.5 1*3.5 U3.5 1*3.5 1*3.5 1*3.5 1*5.5 1*5.5 1*5.5 San Francisco 1*9 1*9 1*6 1*6 1*6 1*5 1*5 1*3 1*3 1*5 1*5 1*5 1*7 1*7 1*7 1*7 1*6 1*6 1*7 1*7 1*7 1*7 U7 Los Angeles 1*5.5 1*2.5 1*2.5 1*2.5 1*0.5 1*0.5 38.5 38.5 38.5 38.5 38.5 38.5 38.5 38.5 39.5 39.5 39-5 39.5 39.5 39.5 39.5 39.5 37.5 a/ The prices are the low side of the reported price range for Grade A Large eggs in cases and apply to prices paid by retailers, f.o.b. distributors' plants. Source: U. S. Agricultural Mai-keting Service, and Calji-omia Department of Agriculture, Bureau of Market News, cooperating, DaiJy Market Report (San Francisco and Los Angeles: Fedoral-State Market News Service). (Daily issues.) 87. APPENDIX C OPERATION OF MARKETS WITH FEW FIRMS A Itk-vp?" Dody of theory has been developed which aids in explaining the functioning of a market or markets in which a few large firms are the dominant force. Theories dealing with monopolisitc competition and oligopoly are neces- sary and helpful in understanding market situations which depart significantly from the general model discussed in Section III. But, since the body of theory dealing with monopoly and oligopoly is indeed voluminous, only the essentials dealing with topics of primary concern to this study will be outlined here. It should be made clear that the discussion will refer always to relatively small local geographic markets. Prom the standpoint of exercising control, an egg marketing firm may handle only a very small proportion of the national supply yet be dominant in a local market. Location itself provides some protection from competition because of the cost of transporting the product, either by producers or middlemen, from the local area to competing markets or vice versa. In markets with few firms, the prices quoted and the price policy followed will tend to contribute to the maintenance of the firm's position with respect to the other firms and consumers. Departures will be made only when it is fairly clear to the firm that gains can be made by moving into rival territory. The oligopolist must follow a price policy which will not call forth retaliation by other firms nor cause new firms to enter the industry. Within these general limitations and with a view of maintaining retail outlets, price will be allowed to fluctuate in a manner which will tend to maximize profits in the short run or long run or both, whichever the management decides is the most important objec- tive. But the foregoing policy will lead to price rigidity, as has been so clearly stated by Rothschild: "Since, therefore, the quoted price is not the mechanic result of impersonal market forces nor the essential adjustment to a constantly changing environment, but the expression of a strategic policy, it is clear that there will be a tendency for its rigid maintenance. The propogandistic value of declaring a position as a stronghold will soon evaporate if this stronghold is constantly shifted. The existence of a stable price instead of a fluctuating one will deter rivals from start- ing panicky price-reduction campaigns, and it will not induce newcomers to enter a booming market; consumers, too, are often supposed to prefer fixed prices. Thus, the desire for building up a strategic stronghold will — within certain limits— neutralize the profit maximizing principle of changing price with every change in demand or costs. Even a price change of one's rivals may be ignored as long as one's relative posi- tion in the industry is not affected. .1 :\;iO!9d.t. "iO;?j5boa A .p — v- • 10 5,^ 3 'to assets rxanor to ©*iB«(s<»isi lO'OO;, £ 9Ci' h.r-rrr'rt ^-rn ni fas»ejtf erf s^nir-iq 89 of offer prices alone is^ moreo'ver, not without significance; widespread depar- tures from the 'official' price usually compel an adjustment of 'official' to actual prices. "i^ In this study, the "official" price would be equivalent to the Market News Service quoted price. The crucial question with respect to quoted and transaction prices, providing the data for analysis is available, is the degree by which the transaction prices might vary over time from the quoted price. If daily or weekly transaction prices differ from quoted prices always by some constant, then quotation prices provide equally as good data for deter- mining stability of prices in various markets as do transaction prices. Another aspect of prices in markets with a few dominant firms is the possi- ble emergence of a price leader. When one firm among a few in the market emerges as dominant in size, it will generally be the price leader, although firms other than the largest often are cast in the role of the price leader. Both Los Angeles and San Frai Cisco have egg marketing firms of sufficient size to act as price leaders in determining the level of administered prices. 2/ Burns, Arthur Robert, The Decline of Competition (New York and London: McGraw-Hill Book Company, Inc., 1936), p. 197. 16 ^nasi'J' *8ff»- exs