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Structural Model of Retail Market Power: The U.S. Milk Industry


  • Hovhannisyan, Vardges
  • Gould, Brian W.


The 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.

Suggested Citation

  • Hovhannisyan, Vardges & Gould, Brian W., 2011. "Structural Model of Retail Market Power: The U.S. Milk Industry," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103590, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea11:103590

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    References listed on IDEAS

    1. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
    2. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-122, February.
    3. Robert L. Steiner, 2004. "The Nature and Benefits of National Brand/Private Label Competition," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 24(2), pages 105-127, March.
    4. Perloff,Jeffrey M. & Karp,Larry S. & Golan,Amos, 2007. "Estimating Market Power and Strategies," Cambridge Books, Cambridge University Press, number 9780521011143, March.
    5. Lau, Lawrence J., 1982. "On identifying the degree of competitiveness from industry price and output data," Economics Letters, Elsevier, vol. 10(1-2), pages 93-99.
    6. Hovhannisyan, Vardges & Stiegert, Kyle W., 2011. "Vertical Channel Analysis of the U.S. Milk Market," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103631, Agricultural and Applied Economics Association.
    7. Pollak, Robert A & Wales, Terence J, 1981. "Demographic Variables in Demand Analysis," Econometrica, Econometric Society, vol. 49(6), pages 1533-1551, November.
    8. Alston, Julian M. & Chalfant, James A. & Piggott, Nicholas E., 2001. "Incorporating demand shifters in the Almost Ideal demand system," Economics Letters, Elsevier, vol. 70(1), pages 73-78, January.
    9. Corts, Kenneth S., 1998. "Conduct parameters and the measurement of market power," Journal of Econometrics, Elsevier, vol. 88(2), pages 227-250, November.
    10. Charles Hyde & Jeffrey Perloff, 1998. "Multimarket market power estimation: the Australian retail meat sector," Applied Economics, Taylor & Francis Journals, vol. 30(9), pages 1169-1176.
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    More about this item


    Demand and Price Analysis; Industrial Organization; GQAIDS demand; structural model; national brand; private label milk;

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