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Entry deterring effects of contractual relations in the dairy processing sector

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  • Zavelberg, Yvonne
  • Heckelei, Thomas
  • Wieck, Christine

Abstract

The European Commission has launched the so-called “milk package” in October 2012 that allows Member States to require compulsory written contracts between milk producers and investor-owned processors. We argue that compulsory contracts have anticompetitive effects when they are exclusive in the sense that they comprise the obligation to supply to the contractor only. The objective of this paper is to set up a game theoretic model to analyze imperfect competition on the raw milk market that may result from entry deterring effects of exclusive contracts between dairy producers and processors. Building on the antitrust literature, the model incorporates the specific characteristics of the milk market and considers the risk attitude of milk producers and uncertainty of a rival dairy’s market entry. Under certain combinations of probability of the rival’s market entry and risk aversion of the producer, an incumbent can deter market entry by offering an exclusive contract.

Suggested Citation

  • Zavelberg, Yvonne & Heckelei, Thomas & Wieck, Christine, 2016. "Entry deterring effects of contractual relations in the dairy processing sector," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 5(1), pages 1-16, April.
    • Handle: RePEc:ags:aieabj:239850
    DOI: 10.22004/ag.econ.239850
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    Cited by:

    1. Petersen, Julian & Hess, Sebastian, 2018. "Die Zukunft der Milch-Lieferbeziehungen aus Sicht deutscher Landwirte," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 67(2), June.
    2. Petersen, Julian & Hess, Sebastian, 2018. "Der Wettbewerb Um Rohmilch In Deutschland: Hat Das Bundeskartellamt Recht?," 58th Annual Conference, Kiel, Germany, September 12-14, 2018 275894, German Association of Agricultural Economists (GEWISOLA).

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    More about this item

    Keywords

    Farm Management; Livestock Production/Industries;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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