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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

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  • Tirtha Pratim Dhar
  • Ronald W. Cotterill

Abstract

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.

Suggested Citation

  • Tirtha Pratim Dhar & Ronald W. Cotterill, 2002. "Price Transmission in Differentiated Product Market Channels: A Study of the Boston Fluid Milk Market and the North East Dairy Compact," Food Marketing Policy Center Research Reports 067, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    • Handle: RePEc:zwi:fpcrep:067
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    Cited by:

    1. Tian, Li, 2006. "The Strategic Effect of Private Label in a Vertical Bargaining Model," Research Reports 170112, University of Connecticut, Food Marketing Policy Center.
    2. Ronald W. Cotterill, 2002. "Comments on the Food Marketing Institutes’ Submission to the FTC Titled “Supermarket Merger Investigations and Remedies”," Issue Papers 27, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    3. Kim, Donghun, 2004. "Market Structure, Price Pass-Through and Welfare with Differentiated Products," Research Reports 25157, University of Connecticut, Food Marketing Policy Center.
    4. Goddard, Ellen W. & Shank, Benjamin & Panter, Chris & Nilsson, Tomas K.H. & Cash, Sean B., 2007. "Canadian Chicken Industry: Consumer Preferences, Industry Structure and Producer Benefits from Investment in Research and Advertising," Project Report Series 52088, University of Alberta, Department of Resource Economics and Environmental Sociology.
    5. repec:ags:uconnr:149205 is not listed on IDEAS
    6. Kim, Donghun, 2004. "Market Structure, Price Pass-Through and Welfare with Differentiated Products," Food Marketing Policy Center Research Reports 080, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.

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