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Mt + 0t Wt
and by definition
M = R W
t t t
where Mt, Rr> and Wt, are margin, retail price, and wholesale price at
time t, respectively. Since wholesale price is the causal price, retail
price can be written in structural form as
= a + bW^
Then by substitution
* a + bWfc -
M a + 0Wt
where a = a and 0 =* b-1. The terms a and 0 are the absolute and per
centage components of the margin, respectively (George and King, 1971).
If the retail price is assumed to be the causal price, then wholesale
price can be written in structural form as
Wt a + bRj.
Then by substitution
Mt Rt (a + bRfc)
Mt = a + 0 Rt
where a = -a and 0 =* 1 b. Thus, the interpretation of the absolute
component (a) and the percentage component of price (0) depend on the
direction of price determination between the adjacent market levels.
These margin expressions are in terms of price. The structural
price models to be estimated also contain non-price parameters.