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Oligopoly Pricing with Differentiated Products: The Boston Fluid Milk Market Channel

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  • Cotterill, Ronald W.
  • Dhar, Tirtha Pratim

Abstract

We model Boston fluid milk market after taking into account strategic interactions of the processors and retailers and estimate it using monthly propriety retail scanner data and other data from public sources from 1996 to 2000. Market demand is modeled using flexible nested logit demand system and processor level cost is modeled using flexible generalized Leontief cost function. Our modeled is flexible enough to capture the nature of competition between brands within store and across stores. We find that the brands compete much more vigorously within store and than across stores. This structure of competition fits squarely with Slade's (1995) assumption on retail competition. We also explore strategic implications of the North East Dairy Compact on retailers and processors using emerging methodologies of antitrust simulation. The predictions from the antitrust simulation analysis are consistent with the concept of "focal point pricing" at the Compact implementation, suggesting an increase of market power in the fluid milk marketing channel. Our estimated brand level total channel price cost margins also show that the margins increased after the Compact implementation.

Suggested Citation

  • Cotterill, Ronald W. & Dhar, Tirtha Pratim, 2003. "Oligopoly Pricing with Differentiated Products: The Boston Fluid Milk Market Channel," Research Reports 25189, University of Connecticut, Food Marketing Policy Center.
  • Handle: RePEc:ags:uconnr:25189
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    References listed on IDEAS

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    12. Ronald W. Cotterill & Pierre O. Samson, 2002. "Estimating a Brand-Level Demand System for American Cheese Products to Evaluate Unilateral and Coordinated Market Power Strategies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(3), pages 817-823.
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    Citations

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    Cited by:

    1. Alessandro Bonanno & Rigoberto A. Lopez, 2007. "Competition Effects of Supermarket Services," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 555-568.
    2. Bonanno, Alessandro & Lopez, Rigoberto A., 2004. "Private Labels, Retail Configuration, and Fluid Milk Prices," Research Reports 25222, University of Connecticut, Food Marketing Policy Center.
    3. Ronald W. Cotterill, 2003. "Dairy Policy for New England: Options at the State and Regional Level," Food Marketing Policy Center Research Reports 076, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    4. Cotterill, Ronald W., 2006. "Antitrust analysis of supermarkets: global concerns playing out in local markets," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(1), March.
    5. Basak Canan & Ronald W. Cotterill, 2006. "Strategic pricing in a differentiated product oligopoly model: fluid milk in Boston," Agricultural Economics, International Association of Agricultural Economists, vol. 35(1), pages 27-33, July.
    6. Hoy F. Carman & Richard J. Sexton, 2005. "Supermarket fluid milk pricing practices in the western United States," Agribusiness, John Wiley & Sons, Ltd., vol. 21(4), pages 509-530.
    7. Tian, Li & Cotterill, Ronald, 2004. "The Theory of Price Collars: The Linking of Prices in a Market Channel to Redress the Exercise of Market Power," Research Reports 149025, University of Connecticut, Food Marketing Policy Center.
    8. Li, Xun & Lopez, Rigoberto A., 2015. "Energy Price Transmission and Retail Milk Prices," Working Papers 38, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    9. Vandermersch, Mieke & Mathijs, Erik, 2004. "Consumer Willingness To Pay For Domestic Milk," Working Papers 31829, Katholieke Universiteit Leuven, Centre for Agricultural and Food Economics.
    10. Ronald W. Cotterill & Adam Rabinowitz & Tian, Li, 2003. "An Act Concerning the Fair Pricing of Milk," Issue Papers 39, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    11. Du, Ying & Stiegert, Kyle W., 2009. "Strategic Vertical Pricing in the U.S. Butter Market," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 51712, Agricultural and Applied Economics Association.
    12. Benaissa Chidmi & Rigoberto A. Lopez & Ronald W. Cotterill, 2005. "Retail oligopoly power, dairy compact, and Boston milk prices," Agribusiness, John Wiley & Sons, Ltd., vol. 21(4), pages 477-491.
    13. Laura Onofri & Vasco Boatto, 2015. "Cournot Oligopoly, Homogeneous Products and Grappa Market: An Econometric Study," EERI Research Paper Series EERI RP 2015/01, Economics and Econometrics Research Institute (EERI), Brussels.
    14. Richards, Timothy J. & Hamilton, Stephen F. & Patterson, Paul M., 2010. "Spatial Competition and Private Labels," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(2), August.
    15. Richards, Timothy J., 2004. "Price and Product-Line Rivalry Among Supermarket Retailers," Working Papers 28535, Arizona State University, Morrison School of Agribusiness and Resource Management.
    16. Timothy Richards, 2007. "A nested logit model of strategic promotion," Quantitative Marketing and Economics (QME), Springer, vol. 5(1), pages 63-91, March.
    17. Tchumtchoua, Sylvie & Cotterill, Ronald, 2010. "Optimal Brand and Generic Advertising Policies in a Dynamic Differentiated Product Oligopoly," Research Reports 149978, University of Connecticut, Food Marketing Policy Center.
    18. Cotterill, Ronald W., 2003. "Perspectives on Global Concentration and Public Policy," Research Reports 25206, University of Connecticut, Food Marketing Policy Center.
    19. Ronald W. Cotterill, 2002. "A Fair Share Law for Connecticut and Other Northeast Dairy States: A State Level Solution to Retail Milk Price Gouging and the Dairy Farm Crisis," Issue Papers 29, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    20. Bonanno Alessandro & Lopez Rigoberto A., 2005. "Private Label Expansion and Supermarket Milk Prices," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 3(1), pages 1-18, February.

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