When a good is purchased via a retailer or wholesaler, the price that is paid (Purchaser Price) for the item differs from the actual Producer Price of the item. This is because it includes the cost for transportation and the cost of the wholesale and/or retail service of selling the item conveniently to the consumer. The cost of transportation and the wholesale/retail service are called Margins. The Producer Price of a good plus the costs of Margins equals the Purchaser Price of the good.
Margins are only applicable in Commodity Output Events when you are analyzing Events with a Commodity that can be sold via a retailer or wholesaler. Margins are applied to Commodity Output when Total Revenue is selected in the Advanced Menu of the Event, which is the default setting for marginable Commodity Output Events.
When you have an Event where Margins are applicable because you've entered Purchaser Price as your Commodity Output, simply leave the default selection of Total Revenue value. If your Event Value is Marginal Revenue, equivalent to Producer Price, you'll need to change the Margins selection in the Advanced Menu of the Event to Marginal Revenue.
COMMODITY OUTPUT MARGIN OPTIONS:
Total Revenue in a Commodity Output Event indicates to the software that the Event Value is a retail/wholesale sales price or Purchaser Price and includes Margin Costs for transportation and wholesaling/retailing services in addition to the Producer Price of the goods sold.
There is a difference between applying Margins by selecting Total Revenue in Industry Output Events and Commodity Output Events. When the item purchased is known, use a Commodity Output Event. Total Revenue is still the appropriate selection when only the price paid at the retailer/wholesaler is available to you. Instead of specifying the retailer or wholesaler where the item was purchased, the Commodity itself should be specified. Note that margins cannot be applied in Industry Events when a non-retail/wholesale Sector has been specified.
This is very different than the example in Retail and Wholesale Industries: Total Revenue versus Marginal Revenue. In that example, we only knew that $105,000 was spent at the gas station. Now, let’s assume we know $100,000 of the $105,000 is spent specifically on gas at the gas station. By using a Commodity Output Event, specifying Commodity 3154 - Refined petroleum products and leaving “Total Revenue” selected in the Advanced Menu, IMPLAN estimates the impact of the full Event Value, unlike in the case of applying Margins to an Industry Output Event. IMPLAN will use Commodity margins to distribute the Total Revenue to each producer in the Value Chain. This process converts the provided Total Revenue into Marginal Revenue values for the producer, transporter(s) and wholesale/retailer(s).
When taking this approach, it is recommended to check the “SAM” box in order to set your Local Purchase Percentage (LPP) to the Regional Purchasing Coefficient (RPC) as shown below. This will set the LPP for the production of each Commodity in the Value Chain to the Regional Purchasing Coefficient for the respective Commodity. This tells IMPLAN to assume each Commodity will be purchased locally at the same rate in which each Commodity was on average purchased locally during the Data Year.
2018 Margin Coefficients for Commodity 3154 - Refined petroleum products:
|3154||Refined petroleum products||0.68155|
|3399||Wholesale services - Petroleum and petroleum products||0.13512|
|3401||Wholesale services - Wholesale electronic markets and agents and brokers||0.02039|
|3408||Retail services - Gasoline stores||0.14697|
|3414||Air transportation services||0.00002|
|3415||Rail transportation services||0.00108|
|3416||Water transportation services||0.00211|
|3417||Truck transportation services||0.00783|
|3419||Pipeline transportation services||0.00493|
Data can be found in the document 2018 Margins.
When examining the Margins for Commodity 3154 - Refined petroleum products, we see the full list of Margins above. The Margin from 3154 to 3154 shows the Margin Coefficient Value as 0.68. This means 68% of the Total Revenue is Marginal Revenue/Producer Price of refined petroleum products (gas) purchased at the gas station.
Commodity 3399 - Wholesale services - Petroleum and petroleum products represents 14% of the total cost. Commodity 3408 - Retail services - Gasoline stores gets allocated 15% of the retail purchase of the gas.
Therefore when this Event is Run, we see Direct Output Effects to each Industry that produces the above Commodities in the Region.
To illustrate this, here are the Detailed Direct Output Results of this Event analyzed as if the gas station in our example is located in North Carolina (2018 Data Year):
These Direct Output Effects sum to $30,153.79 rather than the full Event Value modeled, $100,000, largely due to the setting of LPP to SAM. Notice there is only $56.82 of Direct Output in Industry 159 - Petrochemical manufacturing and $287.32 in Industry 20 - Oil and gas extraction (both producers in the Region of refined petroleum) even though the Producer Price for the gas according the Margins was $100,000 x .68 = $68,000.
This is because in North Carolina in 2018 the RPC for refined petroleum is only 1.57% (found in Region Details > Social Accounts > Reports > Commodity Summary, in the Commodity Averages Summary table see “Average RPC” column). The remaining money is a leakage, suggesting most of the gas pumped in North Carolina is produced outside of the state.
The largest Direct Output Effects are in retail and wholesale because these services are the most locally available portion of the Value Chain in this example. Nonetheless, this approach captured much more of the local impact of the hypothetical visitor gas spending than using an Industry Output Event in the Retail - Gasoline stores Sector. When we took the approach of using an Industry Output Event in the Retail - Gasoline stores Sector the only Direct Output Effect was to the specified retailer of $23,520 based on a Total Revenue of $105,000. Notice here in the case of our margined Commodity Output Event, Direct Output Results are quite similar for Retail Gasoline stores at $14,302.56, (based on a Total Revenue of $100,000). In addition to the Direct Effect on the gas station Sector, we also see the local Direct Effects to gasoline producers, transporters and wholesalers.
By selecting Marginal Revenue in a Commodity Output Event, you are indicating to the software that no Margins should be applied, and therefore the full Event Value will be analyzed as Output of the specified Commodity.
Marginal Revenue is most commonly the appropriate selection in a Commodity Event when the Commodity specified in the Event was not purchased via a retailer or wholesaler, even though it is available via retail/wholesale sellers. For example, large corporations often source goods directly from manufacturers, but households would purchase these same goods via retailers.
Let’s reconsider our example of retail spending at the gas station. If we knew the price of the gas produced by the petroleum refinery before the gas was shipped out, we could enter this Producer Price as the Event Value of our Commodity Output Event with the Refined petroleum products Commodity specified, and select “Marginal Revenue” in the Advanced Menu of the Event. Again, it is possible to know Marginal Revenue to a producer, but it is much more common to know the Purchaser Price paid at the retail/wholesale establishment than the Producer Price.
MARGINS IN SPENDING PATTERN EVENTS:
Spending Patterns in IMPLAN are made up of a list of Commodities, so think of Spending Patterns as a grouping of Commodity Events. The key difference between a Spending Pattern and a grouping of Commodity Events is that the Spending Pattern Event will not produce a Direct Effect. Learn more about using Spending Patterns and groups of Commodity Events in the context of Analysis-by-Parts here.
Another variation between Spending Pattern Events and Commodity Events is that the value of each Commodity within a Spending Pattern can only be edited by updating the coefficient associated with the given Commodity. The coefficient on each Commodity reflects the spending per dollar of Intermediate Expenditures (by default) or Output, depending on what is selected in the Advanced Menu of the Spending Pattern Event. There is no option to apply Margins to the Commodities within a Spending Pattern Event because they are already marginned. As mentioned, when Margins are not applicable the Event Value is assumed to be the Producer Price/Marginal Revenue. The same is true for the coefficients associated with the Commodities of a Spending Pattern Event.
Because Spending Patterns in IMPLAN are marginned, the coefficient for each Commodity in a Spending Pattern reflects the portion of spending that will be allocated as the Producer Price of each Commodity. Therefore, the coefficient on retail/wholesale Commodities in a Spending Pattern reflects the portion of spending that will be estimated as the Marginal Revenue to the given Commodities.
Written February 20, 2020