Complementarities in Production Technologies: An Empirical Analysis of the Dairy Industry

In this article, we present empirical evidence to show that a commonly held belief is likely false. Specifically, we examine the claim that three widely used dairy technologies and management practices complement the use of rbST in the sense that they increase the marginal return of rbST. Using the definition described in Milgrom and Roberts (1990) that the presence of supermodular profit or total output functions is evidence of complementarity, our results show that the use of a computerized feeding system or total mixed ration feed balance system is complementary with the use of rbST, but that this complementarity only exists for when considering the effects on feed costs per cow. We are unable to detect any complementary relationships for operating margins per hundredweight of milk, operating margins per cow, or feed costs per hundredweight of milk. These results show that having a TMR feed balance system, being a member in a DHIA, or using a computerized feed system do not necessarily increase the marginal productivity or profitability of using rbST. This paper is the first to our knowledge that uses the production function approach to estimate econometrically whether complementarities among dairy technologies exist.