Impact of Spatial Price Discrimination within Florida Dairy Cooperatives

The trend toward deregulation and the relatively high prices in the Florida milk market have increased competition for milk supplies between the Florida dairy cooperatives (FDCs) and other cooperatives like Dairymen Incorporated and Southern Milk Sales. Because of the increased competition in the Florida markets, the FDCs may need to implement a discriminatory spatial pricing policy. The discriminatory pricing policy allows the FDCs to expand their membership by absorbing some of the transportation cost of producers in distant locations that would otherwise be independent producers or members of competing cooperatives. Spatial pricing policies are analyzed to determine the effects of discriminatory pricing on the blend price, average aggregate revenue of cooperative members, and total costs and quantity of milk imports. The results of this study show that a nondiscriminatory pricing policy maximizes the cooperative members’ blend price and average aggregate revenue. However, if the FDCs were able to increase the price by $0.50 as a result of using spatial price discrimination to gain market power, spatial price discrimination would maximize average revenue and blend price.