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Retail oligopoly power, dairy compact, and Boston milk prices

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  • Benaissa Chidmi

    (Department of Agricultural and Resource Economics, University of Connecticut, Storrs, CT 06269-4021)

  • Rigoberto A. Lopez

    (Department of Agricultural and Resource Economics, University of Connecticut, Storrs, CT 06269-4021)

  • Ronald W. Cotterill

    (Department of Agricultural and Resource Economics, University of Connecticut, Storrs, CT 06269-4021)

Abstract

This paper assesses the impacts of the Northeast Dairy Compact (NEDC) and retail oligopoly power on fluid milk prices in Boston. Empirical results reveal that price increases due to oligopoly power outweighed those caused by the NEDC by nearly seven times. In fact, markups are estimated at approximately 25% of the retail milk price, translating into approximately a little less than $0.75|gallon. We also estimated that only around two-thirds of the raw milk price changes were passed forward to consumers. This helps explain why consumer prices have come down only little after elimination of the NEDC. In fact, the new milk income-loss contract program, which basically provides partial price subsidies to farmers, has contributed to low raw milk prices that have generated substantial benefits to milk processors and retailers, modest benefits to farmers and consumers, all at the expense of taxpayers. [JEL classification: L66, L11, L13]. © 2005 Wiley Periodicals, Inc. Agribusiness 21: 477-491, 2005.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 21 (2005)
Issue (Month): 4 ()
Pages: 477-491

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Handle: RePEc:wly:agribz:v:21:y:2005:i:4:p:477-491

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Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. Narasimhan, Chakravarthi & Wilcox, Ronald T, 1998. "Private Labels and the Channel Relationship: A Cross-Category Analysis," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 71(4), pages 573-600, October.
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  4. Sexton, Richard J. & Lavoie, Nathalie, 2001. "Food processing and distribution: An industrial organization approach," Handbook of Agricultural Economics, Elsevier, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 15, pages 863-932 Elsevier.
  5. Severin Borenstein & Stephen P. Holland, 2003. "On the Efficiency of Competitive Electricity Markets With Time-Invariant Retail Prices," NBER Working Papers 9922, National Bureau of Economic Research, Inc.
  6. Rigoberto Lopez & Azzeddine Azzam & Carmen Lirón-España, 2002. "Market Power and/or Efficiency: A Structural Approach," Review of Industrial Organization, Springer, Springer, vol. 20(2), pages 115-126, March.
  7. Cotterill, Ronald W. & Dhar, Tirtha Pratim, 2003. "Oligopoly Pricing with Differentiated Products: The Boston Fluid Milk Market Channel," Research Reports, University of Connecticut, Food Marketing Policy Center 25189, University of Connecticut, Food Marketing Policy Center.
  8. Bonanno, Alessandro & Lopez, Rigoberto A., 2004. "Private Labels, Retail Configuration, and Fluid Milk Prices," Research Reports, University of Connecticut, Food Marketing Policy Center 25222, University of Connecticut, Food Marketing Policy Center.
  9. Huang, Kuo S., 1985. "U.S. Demand for Food: A Complete System of Price and Income Effects," Technical Bulletins, United States Department of Agriculture, Economic Research Service 157014, United States Department of Agriculture, Economic Research Service.
  10. Liu, Donald J. & Sun, Chin-Hwa & Kaiser, Harry M., 1995. "Market Conduct Under Government Price Intervention In The U.S. Dairy Industry," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 20(02), December.
  11. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, Elsevier, vol. 19(2-3), pages 287-299, August.
  12. Junko Kinoshita & Nobuhiro Suzuki & Tamotsu Kawamura & Yasuhito Watanabe & Harry M. Kaiser, 2001. "Estimating own and cross brand price elasticities, and price-cost margin ratios using store-level daily scanner data," Agribusiness, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 17(4), pages 515-525.
  13. repec:reg:wpaper:206 is not listed on IDEAS
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Cited by:
  1. Elena López & Rigoberto A. López, 2008. "Demand for differentiated milk products: Implications for price competition," Alcamentos, Universidad de Alcalá, Departamento de Economía. 0805, Universidad de Alcalá, Departamento de Economía..
  2. Daniel A. Lass, 2005. "Asymmetric response of retail milk prices in the northeast revisited," Agribusiness, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(4), pages 493-508.
  3. Oral Capps & Pablo Sherwell, 2007. "Alternative approaches in detecting asymmetry in farm-retail price transmission of fluid milk," Agribusiness, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 23(3), pages 313-331.
  4. Zhou, Guzhen & Tran Cong, Chinh & Poerwanto, Devie A. & Goodman, Lucas A. & Pelton, Marie E. & Vollaro, Michele & Childress, Ronald & Kaninda Tshikala, Sam & He, Xiao & Zheng, Zijuan & Maynard, Leigh , 2010. "Willingness-to-Pay for New Products in a University Foodservice Setting," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado, Agricultural and Applied Economics Association 61332, Agricultural and Applied Economics Association.
  5. Ronald W. Cotterill, 2006. "Annotated and Expanded Minutes of the Milk Marketing Policy Meeting," Issue Papers, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy 51, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  6. Rebecca L. O. Cleary & Rigoberto A. Lopez, 2007. "Is Wal-Mart Good for Competition? Evidence from Milk Prices," Food Marketing Policy Center Research Reports, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy 101, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  7. Sckokai, Paolo & Soregaroli, Claudio & Moro, Daniele, 2012. "Estimating Market Power By Retailers In A Dynamic Framework: The Case Of The Italian Pdo Cheese Market," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil, International Association of Agricultural Economists 126703, International Association of Agricultural Economists.
  8. Alessandro Bonanno & Rigoberto A. Lopez, 2007. "Competition Effects of Supermarket Services," Food Marketing Policy Center Research Reports, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy 094, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  9. Zhuang, Yan & Dimitri, Carolyn & Jaenicke, Edward C., 2010. "Price Reactions And Organic Price Premiums For Private Label And Branded Milk," 115th Joint EAAE/AAEA Seminar, September 15-17, 2010, Freising-Weihenstephan, Germany, European Association of Agricultural Economists;Agricultural and Applied Economics Association 116388, European Association of Agricultural Economists;Agricultural and Applied Economics Association.
  10. Chidmi, Benaissa & Lopez, Rigoberto A. & Cotterill, Ronald W., 2009. "The Retail Service, The Market Power, and the Vertical Relationships in Breakfast Cereals Industry," 2009 Conference, August 16-22, 2009, Beijing, China, International Association of Agricultural Economists 51770, International Association of Agricultural Economists.
  11. Lass, Daniel, 2005. "Asymmetric Response of Retail Milk Prices in the Northeast Revisited," Research Reports, University of Connecticut, Food Marketing Policy Center 149026, University of Connecticut, Food Marketing Policy Center.

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