Market Integration in European Union’s Fruits and Vegetables Sector

The definition of market integration is linked the well-known concept of Law of One Price (LOP). In particular, the concept of market integration regards the existence of a common trend in two (or more) prices in different markets. Usually the intent of literature is not to assess if there is integration, but to measure the degree of integration between markets, that is how shocks are transmitted from one market to others and many approaches to the study of market integration through econometric techniques have been adopted. The aim of the present chapter is to provide a summary of the main issues of the open debate on market integration: new models to test market integration and modern econometric approaches that seems to be able to capture complex dynamics.
One of the main characteristic of agricultural commodities prices is the high incidence of transport costs with respect to their unit value. Commodities markets are linked through a complex web of relationships based on price movements, and the spatial price analysis allows understanding how markets work and their performance in terms of efficiency. In particular, many analysts have attempted to draw conclusions about the degree of integration of regions.
The concept of market integration is very important, and it has been used in various studies, such as assessing the impact of policies of liberalization, defining the market boundaries, examining the market efficiency, assessing the vulnerability of regions to price shocks, evaluating the impact of technological innovations.
A concept closely related to the market integration is the well-known Law of One Price (LOP), which states that, apart from transaction costs, markets linked by trade and arbitrage will have a common and unique price. The intent of the recent literature has been to measure the degree of integration between markets in order to understand how prices shocks are transmitted from one market to others.