Estimation of Relative Bargaining Power in Markets for Raw Milk in the United States

Abstract

This study contributes to the empirical industrial organization literature by deriving and estimating the empirical equation containing the parameter for bargaining power and an indicator of competition between suppliers. We specify a reduced form of the price equation, which is composed of the minimum price specified in milk marketing orders and the reduced form of the upper bound for the price in regional raw milk markets in the United States. Estimation results indicate that the relative bargaining power of dairy cooperatives in setting regional raw milk prices is small compared to the power of milk bottlers. We find the price differential in milk marketing orders has contributed to raise the price bargained between dairy cooperatives and milk bottlers.