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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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File URL: http://hdl.handle.net/10.1093/ajae/aar136
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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 94 (2012)
Issue (Month): 3 ()
Pages: 647-658

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Handle: RePEc:oup:ajagec:v:94:y:2012:i:3:p:647-658

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Cited by:
  1. Cai, Xiaowei & Stiegert, Kyle W., 2012. "Economic Analysis of the U.S. Fluid Milk Industry," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124939, Agricultural and Applied Economics Association.
  2. Moro, Daniele & Paolo, Sckokai & Veneziani, Mario, 2012. "Multi-stage Market Power in the Italian Fresh Meat Industry," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125065, Agricultural and Applied Economics Association.
  3. Maxime Agbo & Damien Rousselière & Julien Salanié, 2013. "A Theory of Agricultural Marketing Cooperatives with Direct selling," Working Papers halshs-00906894, HAL.

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