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Entry deterring effects of contractual relations in the dairy processing sector

Author

Listed:
  • Zavelberg, Yvonne
  • Wieck, Christine
  • Heckelei, Thomas

Abstract

Addressing the competitive imbalances in the dairy sector, the High Level Group of dairy market experts proposed written formal contracts between raw milk producers and processors to improve the bargaining position of producers and to stabilize milk supply. However, exclusive contracts, where a farmer is obliged to deliver his whole production amount to one dairy only, may lead to the opposite effect as they may deter market entry of rival dairies. We develop a theretical model and show that an incumbent dairy can deter entry of a rival dairy when the farmer is risk averse.

Suggested Citation

  • Zavelberg, Yvonne & Wieck, Christine & Heckelei, Thomas, 2013. "Entry deterring effects of contractual relations in the dairy processing sector," 53rd Annual Conference, Berlin, Germany, September 25-27, 2013 156225, German Association of Agricultural Economists (GEWISOLA).
  • Handle: RePEc:ags:gewi13:156225
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    References listed on IDEAS

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    More about this item

    Keywords

    competition; buyer power; exclusive contract; entry deterrence; dairy; Agricultural and Food Policy; Demand and Price Analysis; Industrial Organization;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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