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Organic label and profits sharing in the French fluid milk market

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  • Bonnet, Céline
  • Bouamra-Mechemache, Zohra

Abstract

The market for organic products increases continuously over time. Because con- sumers are willing to pay a premium for organic goods, firms may have an interest in developing organic production strategies and entering a profitable market segment. The objective of this paper is to assess the profitability of such a strategy and to de- termine how the value added created by the existence of an organic label is shared in a vertical chain among manufacturers and retailers. Using purchase data on the French fluid milk sector, we develop a structural econometric model of demand and supply that takes into account the relative bargaining power between manufacturers and retailers. Our results suggest that the organic label segment is more profitable as it permits the existence of higher margins. Moreover, an organic label allows manu- facturers to achieve more bargaining power relative to retailers and hence to obtain a higher share of total margins.

Suggested Citation

  • Bonnet, Céline & Bouamra-Mechemache, Zohra, 2014. "Organic label and profits sharing in the French fluid milk market," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182708, European Association of Agricultural Economists.
    • Handle: RePEc:ags:eaae14:182708
    DOI: 10.22004/ag.econ.182708
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    References listed on IDEAS

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    1. Michaela Draganska & Daniel Klapper & Sofia B. Villas-Boas, 2010. "A Larger Slice or a Larger Pie? An Empirical Investigation of Bargaining Power in the Distribution Channel," Marketing Science, INFORMS, vol. 29(1), pages 57-74, 01-02.
    2. Rachel Griffith & Lars Nesheim, 2008. "Household willingness to pay for organic products," CeMMAP working papers CWP18/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    3. Leslie M. Marx & Greg Shaffer, 1999. "Predatory Accommodation: Below-Cost Pricing without Exclusion in Intermediate Goods Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 22-43, Spring.
    4. van Doorn, Jenny & Verhoef, Peter C., 2011. "Willingness to pay for organic products: Differences between virtue and vice foods," International Journal of Research in Marketing, Elsevier, vol. 28(3), pages 167-180.
    5. Michaela Draganska & Daniel Klapper & Sofia B. Villas-Boas, 2010. "A Larger Slice or a Larger Pie? An Empirical Investigation of Bargaining Power in the Distribution Channel," Marketing Science, INFORMS, vol. 29(1), pages 57-74, 01-02.
    6. Glaser, Lewrene K. & Thompson, Gary D., 2000. "Demand For Organic And Conventional Beverage Milk," 2000 Annual Meeting, June 29-July 1, 2000, Vancouver, British Columbia 36346, Western Agricultural Economics Association.
    7. Tirtha Dhar & Jeremy D. Foltz, 2005. "Milk by Any Other Name … Consumer Benefits from Labeled Milk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 214-228.
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    Cited by:

    1. Haucap, Justus & Heimeshoff, Ulrich & Klein, Gordon J. & Rickert, Dennis & Wey, Christian, 2013. "Bargaining power in manufacturer-retailer relationships," DICE Discussion Papers 107, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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