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Incorrect Price Information for a Heterogeneous Commodity: A Conceptual Synthesis
Author(s) -
Hudson Darren,
Ethridge Don,
Segarra Eduardo
Publication year - 1998
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.2307/1349995
Subject(s) - inefficiency , economics , quality (philosophy) , commodity , microeconomics , market price , production (economics) , homogeneous , normal backwardation , price formation , financial economics , econometrics , contango , futures contract , market economy , philosophy , physics , epistemology , thermodynamics
Theory and analysis of markets and market behavior have typically assumed that the information available to market participants is correct. Additionally, most analyses examine market behavior assuming homogeneous products. This article examines the implications of incorrect market price information, especially price differentials based on quality, first conceptually and then with evidence from prior research on cotton prices as an illustration. This evidence shows that price differences based on quality have direct implications on production and marketing processes. Incorrect price/quality information can lead to distortions in the market and market inefficiency.