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UBC Theses and Dissertations

The estimation of the degree of pricing competition in the British Columbia wine industry (1957-1986) Adams, Derek


Until the introduction of the trade liberalization initiatives of 1989, the wine producers of British Columbia appeared to have operated in an environment that fostered less than competitive behaviour. Two factors in particular may have been responsible for creating such an environment: (1) the structure of the industry was inherently oligopolistic; and (2) protection from foreign competition was afforded by the British Columbia government in the form of a wine policy that effectively created non-tariff trade barriers against foreign wine producers. This study econometrically tests the hypothesis that British Columbia wine producers behaved non-competitively during the years 1957 to 1986. A model of the British Columbia wine industry is developed and used to estimate the degree of non-competitive pricing behaviour in the industry, and tests are undertaken to determine whether the estimate of behaviour is consistent with competitive or with other well known behavioral specifications. the main structural components of the industry are described in a model of oligopolistic behaviour using a linear system of equations, in which both demand and pricing equations appear. The parameters which affect each of these equations are estimated using the appropriate estimation technique. The econometric results, and the subsequent statistical tests, support the hypothesis that the domestic wine industry in British Columbia operated in a non-competitive manner between 1957 and 1986. Specifically, the hypothesis of competitive behaviour is statistically rejected, whereas, the hypotheses of Cournot and collusive-type behaviour could not be rejected. These results suggest that British Columbia consumers may have been sacrificing to firms at least a portion of the surplus they would have obtained in a perfectly competitive industry. In addition, it appears that the wine policy of the provincial government helped create a non-competitive industry that will likely have difficulty competing in today's global market for wine.

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