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

Metin Cakir and Joseph Balagtas ()

American Journal of Agricultural Economics, 2012, vol. 94, issue 3, 647-658

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. Copyright 2012, Oxford University Press.

Date: 2012
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