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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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File URL: http://hdl.handle.net/10.1002/agr.20058
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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. 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.
  2. Joseph V. Balagtas & Daniel A. Sumner, 2003. "The Effect of the Northeast Dairy Compact on Producers and Consumers, with Implications of Compact Contagion," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 25(1), pages 123-144.
  3. Bonanno, Alessandro & Lopez, Rigoberto A., 2004. "Private Labels, Retail Configuration, and Fluid Milk Prices," Research Reports 25222, University of Connecticut, Food Marketing Policy Center.
  4. Russell Davidson & James G. MacKinnon, 1981. "Tests for Model Specification in the Presence of Alternative Hypotheses: Some Further Results," Working Papers 430, Queen's University, Department of Economics.
  5. Johnson, Stanley R. & Stonehouse, D. Peter & Hassan, Zuhair A., 1992. "Market Demand for Dairy Products," Staff General Research Papers 575, Iowa State University, Department of Economics.
  6. Rigoberto Lopez & Azzeddine Azzam & Carmen Lirón-España, 2002. "Market Power and/or Efficiency: A Structural Approach," Review of Industrial Organization, Springer, vol. 20(2), pages 115-126, March.
  7. Sexton, Richard J. & Lavoie, Nathalie, 2001. "Food processing and distribution: An industrial organization approach," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 15, pages 863-932 Elsevier.
  8. Cotterill, Ronald W. & Dhar, Tirtha Pratim, 2003. "Oligopoly Pricing with Differentiated Products: The Boston Fluid Milk Market Channel," Research Reports 25189, University of Connecticut, Food Marketing Policy Center.
  9. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
  10. 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., vol. 17(4), pages 515-525.
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Cited by:
  1. 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 126703, International Association of Agricultural Economists.
  2. Elena Lopez & Rigoberto A. Lopez, 2009. "Demand for differentiated milk products: implications for price competition," Agribusiness, John Wiley & Sons, Ltd., vol. 25(4), pages 453-465.
  3. 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 61332, Agricultural and Applied Economics Association.
  4. 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 116388, European Association of Agricultural Economists.
  5. Oral Capps & Pablo Sherwell, 2007. "Alternative approaches in detecting asymmetry in farm-retail price transmission of fluid milk," Agribusiness, John Wiley & Sons, Ltd., vol. 23(3), pages 313-331.
  6. Daniel A. Lass, 2005. "Asymmetric response of retail milk prices in the northeast revisited," Agribusiness, John Wiley & Sons, Ltd., vol. 21(4), pages 493-508.
  7. 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 51770, International Association of Agricultural Economists.

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