Structural Model of Retail Market Power: The U.S. Milk Industry
AbstractThe objective of our research is to investigate retailer market conduct in the sale of beverage milk using a structural model of consumer behavior and retailer optimality conditions that embrace a range of competitive scenarios. The study is based on an aggregate level analysis of retailer behavior with milk quantity used as a strategic variable. We contribute to the literature by employing a Generalized Quadratic Almost Ideal Demand System (GQAIDS) to model milk demand. Furthermore, we derive the retailer optimality conditions that incorporate the slopes of inverse GQAIDS demand curves for the products under study. Lastly, we apply this generalized structural model to study the retailer behavior in marketing national brand (NB) and private label (PL) milk. The market in question is rather concentrated at the downstream level; however we believe that the retailer behavior is most consistent with a competitive atmosphere. Moreover, the results support the conjecture that retailers mainly use the leading NB milk to assure some store traffic while utilizing PL brands for rent extraction.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 103590.
Date of creation: Jul 2011
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Demand and Price Analysis; Industrial Organization; GQAIDS demand; structural model; national brand; private label milk;
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