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Demand for differentiated milk products: Implications for price competition

  • Elena López

    ()

  • Rigoberto A. López

    (Departamento de Economía , Universidad de Alcalá, and Department of Agricultural and Resource Economics, University of Conneticut.)

We apply the Berry, Levinsohn and Pakes (1995) model to scanner data from Boston supermarkets augmented with consumer characteristics data in order to analyze consumer choices and price competition in a differentiated fluid milk market. Milk characteristics include price, fat content, brand name and the organic and/or lactose-free nature of the product. Empirical results show that consumer valuation of fat decreases with income but increases with the number of children. Low-fat and specialty milks, such as organic and lactose-free milks, are preferred by high-income consumers with no children. Although all milks are price elastic at the individual brand level, the cross-price elasticities are quite low and negligible for specialty milks. Based on calculated Lerner indexes, private label milks have the highest percent markups despite their lower prices, while specialty milks have the lowest markups despite their higher prices, which attests to a greater degree of market power for conventional and particularly for private label milk.

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Paper provided by Universidad de Alcalá, Departamento de Economía. in its series Alcamentos with number 0805.

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Length: pages 26
Date of creation: 2008
Date of revision:
Handle: RePEc:alc:alcamo:0805
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  3. 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.
  4. 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.
  5. Junko Kinoshita & Nobuhiro Suzuki & Tamotsu Kawamura & Yasuhito Watanabe & Harry M. Kaiser, 2001. "Estimating own and cross brand price elasticities, and price-cost margin ratios using store-level daily scanner data," Agribusiness, John Wiley & Sons, Ltd., vol. 17(4), pages 515-525.
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  7. Chidmi, Benaissa & Lopez, Rigoberto A., 2007. "AJAE Appendix: Brand-Supermarket Demand for Breakfast Cereals and Retail Competition," American Journal of Agricultural Economics Appendices, Agricultural and Applied Economics Association, vol. 89(2), May.
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  21. 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, 07.
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