Market integration and price leadership: The U.S. Atlantic salmon market

When markets are integrated and the law of one price holds, prices confronted by different producers should tend to uniformity, in the long run, allowance is made for differences in quality and transportation costs. However, how producers coordinate to align prices is not obvious and probably the answer will vary between markets. In this article, we investigate this question using salmon prices differentials, for the main export countries—Canada, Chile, Norway, and the United Kingdom—of farmed Atlantic salmon in the United States market. The results indicate that there is a single common stochastic trend for the prices of the main suppliers of farmed Atlantic salmon in the United States market. Moreover, the Law of One Price cannot be rejected, implying that farmed Atlantic salmon from the different producers are perfect substitutes for U.S. consumers and that markets are fully integrated. Finally, testing for price leadership, we find that the main exporters follow the lead of the least cost-efficient producer, the United Kingdom.