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Price Transmission in Differentiated Product Market Channels: A Study of the Boston Fluid Milk Market and the North East Dairy Compact

  • Tirtha Pratim Dhar
  • Ronald W. Cotterill

This study develops a two-stage market channel model to analyze pricing in the Boston milk market where retailers are differentiated sellers. A nonlinear model of demand and costs, including firm specific and industry cost shift variables is estimated for each of the four leading supermarkets. Cost pass through rates for industry wide shifts are near 100%; for firm specific costs they range between 32 and 47 percent, suggesting that substantial differentiation and related market power. A test for focal point collusion finds that channel firms elevated retail prices when the Northeast Dairy Compact elevated and stabilized raw milk prices.

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File URL: http://fmpc.uconn.edu/publications/rr/rr67.pdf
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Paper provided by University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy in its series Food Marketing Policy Center Research Reports with number 067.

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Date of creation: 2002
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Handle: RePEc:zwi:fpcrep:067
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Phone: 860-486-2836
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Web page: http://www.zwickcenter.uconn.edu
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  1. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  2. Karp, Larry S & Perloff, Jeffrey M, 1989. "Estimating Market Structure and Tax Incidence: The Japanese Television Market," Journal of Industrial Economics, Wiley Blackwell, vol. 37(3), pages 225-39, March.
  3. Severin Borenstein & A. Colin Cameron, 1992. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," NBER Working Papers 4138, National Bureau of Economic Research, Inc.
  4. Timothy Dunne & Mark J Roberts, 1992. "Costs, Demand, and Imperfect Competition as Determinants of Plant_level Output Prices," Working Papers 92-5, Center for Economic Studies, U.S. Census Bureau.
  5. Sumner, Daniel A, 1981. "Measurement of Monopoly Behavior: An Application to the Cigarette Industry," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 1010-19, October.
  6. Slade, Margaret E, 1995. "Product Rivalry with Multiple Strategic Weapons: An Analysis of Price and Advertising Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 445-76, Fall.
  7. S. McCorriston & C. W. Morgan & A. J. Rayner, 1998. "Processing Technology, Market Power and Price Transmission," Journal of Agricultural Economics, Wiley Blackwell, vol. 49(2), pages 185-201.
  8. Ronald W. Cotterill, 2001. "Neoclassical explanations of vertical organization and performance of food Industries," Agribusiness, John Wiley & Sons, Ltd., vol. 17(1), pages 33-57.
  9. Ronald W. Cotterill & William P. Putsis Jr. & Ravi Dhar, 1999. "Assessing the Competitive Interaction Between Private Labels and National Brands," Food Marketing Policy Center Research Reports 044, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  10. Schroeter, John R. & Azzam, Azzeddine M., 1991. "Marketing Margins, Market Power, and Price Uncertainty," Staff General Research Papers 11110, Iowa State University, Department of Economics.
  11. Baker, Jonathan B. & Bresnahan, Timothy F., 1988. "Estimating the residual demand curve facing a single firm," International Journal of Industrial Organization, Elsevier, vol. 6(3), pages 283-300.
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