A Model of Weekly Price Discovery for Florida Celery: Reply

for periods of one to two weeks' duration First, there appears to be some confusion rather than long-run elasticities (Garber and surrounding the intraseasonal (semiweekly) Klepper). operation of the Florida Celery Exchange and With respect to specifying the weekly deinterseasonal acreage allotments. During the mand equation, most of the potential demand time period of our analysis (the 1972-1977 sea- shifters are not available on a weekly basis. Besons) no marketing allotments were imposed cause the series analyzed in our article corresby the Exchange as Updaw suggests; rather, ponds to 12 calendar quarters over a six-year the Exchange practiced only semiweekly price- period, it is highly unlikely that the variation setting activities, and acreage allotments were in the "traditional demand shifters" would be applicable on an annual basis only. great enough to warrant their incorporation in Second, evidence concerning the price elas- our model. We do agree with Updaw, however, ticity of demand is not the main argument that some measure of transport/marketing leading to the conclusion that the Florida costs should be investigated. Such a measure celery market approximates the results ob- is not available to us at this time. tained under competitive conditions as implied In addition, Updaw is incorrect when he by Updaw. Although this finding does consti- argues that any intercorrelation between tute additional evidence supporting our con- lagged California celery prices and quantities tention, our primary argument that the Florida introduces bias to the estimated price coefficprice is near competitive levels is based on ient. Though it is true that a more traditional similarities between the restricted (derived) specification would incorporate only the Caliand unrestricted reduced form equations for fornia price variable, the inclusion of lagged the Florida price variable. The simultaneous California supply in the derived demand equaequation model's reduced form explicitly tion is justified on the basis that it represents treats price as endogenously determined by the market share and may indicate the buying patinteraction of supply and demand as in a terns of middlemen. competitive market. In a noncompetitive mar- Finally, we take issue with Updaw's contenket, where supply is not a meaningful concept, tion that stable prices are inconsistent with there exists a price-setting rule or equation competitive levels. That contention is not supwhich can be estimated in a manner similar to ported by the econometric literature. The the unrestricted reduced form. Thus, the cor- excellent discussion by Wu, for example, sugrespondence between the two reduced form gests that in a dynamic stochastic framework, equations suggests little divergence from the price setters may not restrict output below competitive model. competitive levels while at the same time atThird, Updaw objects to our choice of the tempting to set prices ex ante. Specifically, length of observation. In this regard, he ne- Wu (p. 70) shows that in situations of uncerglects the critical consideration that celery is a tainty, stable prices do not necessarily lead to perishable product. Given that the individual a misallocation of resources. We believe that firm faces a perfectly elastic demand curve at a our results suport this conclusion.