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Imperfect Competition between Milk Manufacturers and Retailers in a Midwestern State in the U.S

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  • Hovhannisyan, Vardges
  • Stiegert, Kyle W.

Abstract

This manuscript studies the market conduct of the milk manufacturers and retail chains in a Midwestern state in the U.S. Following the menu approach we employ a random coefficient logit demand model to investigate several possible scenarios on the supply side. Demand estimates are obtained using both cross-sectional and time series variation in data. We also allow annual variation in consumer demographics which helps identify the coefficients of interaction between consumer demographics and product characteristics. To further enhance identification power we allow choice set of milk to vary across markets. The results are most supportive of the conjecture that manufacturers behave competitively letting the retailers be the residual claimants. Later they may collect a part or full rents from the retailers through two-part tariffs.

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Bibliographic Info

Paper provided by Southern Agricultural Economics Association in its series 2011 Annual Meeting, February 5-8, 2011, Corpus Christi, Texas with number 98844.

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Date of creation: 2011
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Handle: RePEc:ags:saea11:98844

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Related research

Keywords: Market conduct; random coefficient logit; vertical chain; imperfect competition; Agribusiness; Agricultural and Food Policy; Demand and Price Analysis; Industrial Organization; D43; L13;

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  1. Schmalensee, Richard., 1980. "Monopolistic two-part pricing arrangements," Working papers 1105-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Food Marketing Policy Center Research Reports 037, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  3. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 625-652.
  4. Emi Nakamura & Dawit Zerom, 2009. "Accounting for Incomplete Pass-Through," NBER Working Papers 15255, National Bureau of Economic Research, Inc.
  5. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 841-90, July.
  6. Richard J. Volpe III & Nathalie Lavoie, 2006. "The Effect of Wal-Mart Supercenters on Grocery Prices in New England," Working Papers, University of Massachusetts Amherst, Department of Resource Economics 2006-8, University of Massachusetts Amherst, Department of Resource Economics.
  7. Fabian Berg├Ęs-Sennou, 2006. "Store loyalty, bargaining power and the private label production issue," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 33(3), pages 315-335, September.
  8. von Cramon-Taubadel, Stephan, 1998. "Estimating Asymmetric Price Transmission with the Error Correction Representation: An application to the German Pork Market," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 25(1), pages 1-18.
  9. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  10. Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.
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