Impact of Federal Marketing Orders on the Structure of Milk Markets in the United States

R.B. 97-1

A Spatial Equilibrium Model for Idlperfectly Codlpetitive Milk Markets

Traditional spatial equilibrium models have assumed that markets are either perfectly competitive or monopolistic. In this paper, a generalized spatial equilibrium model is developed which allows for any degree of market conduct from perfect competition to monopoly. The model incorporates a dual structure in which there are oligopolistic consignment sellers (producer marketing boards) and perfectly competitive producers receiving pooled returns. The usefulness of the model is demonstrated using Kyushu regional milk market data in Japan. Numerous spatial equilibrium solutions are generated for the Kyushu milk market assuming alternative sets of imperfectly competitive behavior with the dual structure. It is demonstrated that actual interregional milk movements in Japan are better explained by the dual structure imperfect spatial competition model than perfectly competitive or monopolistic spatial competition models. The model solutions generated by the imperfect spatial competition model are useful for analyzing alternative milk marketing organization policies