Estimating Market Power of U.S. Dairy Cooperatives in the Fluid Milk Market

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Abstract
A structural econometric model of vertical relationships is adopted to identify pricing behavior in the supply chain for fluid milk in the United States. The model consists of a system of equations that allows estimation of oligopoly power of dairy co‐operatives and downstream firms, exploiting federal milk marketing order regulations to identify co‐operatives’ marginal cost. A key finding is that co‐operatives use their market power to raise the farm price of milk by almost 9% above marginal cost, resulting in an income transfer of more than $600 million per year in markets regulated by federal milk marketing orders.
Funding Information
  • Agricultural Experiment Station, New Mexico State University
  • Purdue University
  • Purdue Research Foundation

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