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margin models are derived from the reduced form estimates. In the
presence of lagged endogenous prices, final form estimates are utilized
to obtain the margin models. In any case, the reduced or final form
margin expressions are not functions of current endogenous price para
meters. Only exogenous non-price parameters will appear in the reduced
or final form margin expressions (lagged prices may appear in the
reduced forms). Thus, the procedure for obtaining structural margin
models is not applicable for the reduced and final form margin models.
Given that the retail/wholesale price spread is defined as M -
Rt Wt anc* t*ie whlesale/ex'"ve88el pric spread is defined as Wt -
Pt, a structural margin allows for change in exogenous variables
through a single pricethe causal price. Alternatively, the reduced or
final form margin model allows for change In exogenous variables through
both prices. The coefficients in the reduced or final form margins
models are simply the difference between the respective parameter esti
mates in the reduced or final forms for retail, wholesale, or ex-vessel
price, which are expressed in terms of the same set of exogenous vari
ables. Therefore, the sign and absolute value of the coefficient esti
mates in the reduced or final form margin model depend on the relative
magnitude of the respective reduced or final form coefficient estimates.
Thus, there are two forms of margin expressions margins obtained
from structural estimates and margins obtained from reduced or final
form estimates. The structural margins allow inferences to be made
regarding change in non-price variables from only one side of the mar
gin, whereas, the reduced and final form margins examine changes from
both sides of the margin