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Estimating Market Power of U.S. Dairy Cooperatives in the Fluid Milk Market

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  • Metin Cakir
  • Joseph V. Balagtas

Abstract

A structural econometric model of vertical relationships is adopted to identify pricing behavior in the supply chain for fluid milk in the United States. The model consists of a system of equations that allows estimation of oligopoly power of dairy co-operatives and downstream firms, exploiting federal milk marketing order regulations to identify co-operatives' marginal cost. A key finding is that co-operatives use their market power to raise the farm price of milk by almost 9% above marginal cost, resulting in an income transfer of more than $600 million per year in markets regulated by federal milk marketing orders. Copyright 2012, Oxford University Press.

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  • Metin Cakir & Joseph V. Balagtas, 2012. "Estimating Market Power of U.S. Dairy Cooperatives in the Fluid Milk Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(3), pages 647-658.
    • Handle: RePEc:oup:ajagec:v:94:y:2012:i:3:p:647-658
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    File URL: http://hdl.handle.net/10.1093/ajae/aar136
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