Onion, as a staple commodity in Iranian households, has been subject to persistent market instability driven by recurrent price fluctuations. This study investigates the degree of market integration and the behavior of intermediaries in response to price shocks, employing weekly data from 2019–2023 and a nonlinear autoregressive distributed lag (NARDL) framework. The empirical results reveal that farm-gate prices exert a leading influence on price transmission, which is both asymmetric and nonlinear: upward price adjustments are transmitted more rapidly, whereas downward adjustments occur with delay and face resistance from intermediaries. Retail prices exhibit strong persistence, with approximately 21.3% of long-run disequilibrium corrected in each period, implying that market equilibrium is restored within an average of 4.5 weeks.
Policy implications highlight the importance of enhancing input productivity and reducing production costs, fostering cooperatives and direct contracting with retailers, and expanding direct marketing channels. Regular dissemination of price information and consumer awareness initiatives are recommended to mitigate the adverse effects of concentrated market power. Furthermore, enforcing antitrust regulations, monitoring intermediary practices, implementing online platforms for transparent reporting of prices and trading volumes, and preventing artificial supply restrictions are proposed to reduce volatility and promote greater fairness across Iran’s onion supply chain.