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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.

Suggested Citation

  • Hovhannisyan, Vardges & Stiegert, Kyle W., 2011. "Imperfect Competition between Milk Manufacturers and Retailers in a Midwestern State in the U.S," 2011 Annual Meeting, February 5-8, 2011, Corpus Christi, Texas 98844, Southern Agricultural Economics Association.
  • Handle: RePEc:ags:saea11:98844
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    File URL: http://purl.umn.edu/98844
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    References listed on IDEAS

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    1. 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.
    2. Richard J. Volpe & Nathalie Lavoie, 2008. "The Effect of Wal-Mart Supercenters on Grocery Prices in New England," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(1), pages 4-26.
    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. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, pages 307-342.
    5. Richard Schmalensee, 1981. "Monopolistic Two-Part Pricing Arrangements," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 445-466, Autumn.
    6. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
    7. Nakamura, Emi & Zerom, Dawit, 2008. "Accounting for Incomplete Pass-Through," MPRA Paper 14389, University Library of Munich, Germany.
    8. 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.
    9. repec:oup:revage:v:30:y:2008:i:1:p:4-26. is not listed on IDEAS
    10. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    11. 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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    More about this item

    Keywords

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

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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