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Pricing behaviour of cooperatives and investor-owned dairies under spatial competition

Yvonne Zavelberg and Hugo Storm

No 250230, Discussion Papers from University of Bonn, Institute for Food and Resource Economics

Abstract: This paper analyses differences in the pricing behaviour between cooperatives and investor-owned dairies for raw milk in a spatial market setting. We systemize the theoretical literature concerning the relations between price and space in oligopsonistic markets. This provides the foundation for empirically analysing the price-space relationship in the German raw milk market. Space represents the distance to competing dairies and transportation cost. We differentiate between cooperatives and investor-owned dairies in North and South Germany. Specifically, the impact of a dairy’s own legal form and that of neighbouring competitors on the pricing behaviour is assessed. For the South of Germany, a negative relationship between space and raw milk price is found while for the North the relationship is positive. In both North and South the effect is stronger for cooperatives compared to investor-owned firms. Overall, our findings do not necessarily suggest an increase in market power and a decrease in raw milk prices when the concentration process of the dairy sector is progressing. Further, this paper provides the first spatial analysis of the competitive yardstick effect, for which we find weak evidence in the South. For the north, the theory of the competitive yardstick effect cannot be supported empirically. The estimation is based on a panel-data set covering all German dairies from 2001 to 2012 providing information on raw milk prices, processing quantities, legal and production form.

Keywords: Agricultural and Food Policy; Demand and Price Analysis (search for similar items in EconPapers)
Pages: 27
Date: 2016-12-05
New Economics Papers: this item is included in nep-com, nep-hme and nep-ind
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DOI: 10.22004/ag.econ.250230

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