Strategic Implications of Retail Pricing in the U.S. Fluid Milk Market

We explore brand level strategic interactions between skim/low fat and whole milk brands by estimating detailed price elasticity matrix using quadratic almost ideal demand system for eight major U.S. cities. Results of our analysis suggest that the market and demand behavior of skim/low fat and whole milk brands are different. Demand for skim/low fat milk is more elastic than in the case of whole milk. Highly inelastic demand for large number of Private label whole milk brands suggests 'loss leader' pricing strategy by the retailers. Such pricing strategy does not seem to be the norm in skim/low fat milk market.Agribusiness,

TWO-STAGE OLIGOPOLY PRICING WITH DIFFERENTIATED PRODUCT: THE BOSTON FLUID MILK MARKET

By specifying a structural model, the present study estimates different indicators of competitiveness of the fluid milk market, namely average and marginal cost, average profits and price-cost margins, and utility levels for the full, and pre and post Compact time period.Demand and Price Analysis,

MARKET STRUCTURE AND CONSUMER VALUATION IN THE RBST-FREE AND ORGANIC MILK MARKETS

This study uses revealed preferences of consumers to study the consumer valuations of rBST-free and organic milk. The study specifies and estimates a quadratic AIDS model for different milk types using US supermarket scanner data. The introduction of rBST-free and organic milk is used to estimate both competitive and variety effects as measures of consumer valuations. Results show significant consumer valuations for organic milk and to a lesser extent rBST-free milk.Consumer/Household Economics, Industrial Organization,

IS SOY MILK? THE ECONOMICS OF THE SOY MILK MARKET

This study uses revealed preferences of consumers to study the consumer benefits from soy milk. The study specifies and estimates structural demand and reduced form models of competition for different milk types using US supermarket scanner data. The introduction of soy milk is used to estimate consumer benefits and valuations. We decompose benefits into two components, competitive and variety effects. Results show relatively small consumer benefits from soy milk.Demand Systems, Q-AIDS, Milk markets, Biotechnology, Soy milk, Food Labeling, Demand and Price Analysis, Q130, C300, D120, D400,

Strategic Pricing Behavior under Asset Value Maximization

This paper investigates a comprehensive assessment of firm strategic behavior under financial market uncertainty. A general theoretical model of market value maximization (MVM) is constructed using a traditional capital asset pricing format. The model built on the nonlinear Almost Ideal Demand Systems (AIDS) and structural first-order conditions is developed. By full information maximum likelihood (FIML) estimation, the model evaluates pricing strategies in the U.S. margarine and butter retail markets using 4-week interval scanner data from 1998 to 2002. The model of profit maximization is rejected in favor of the MVM structure, and it indicates that financial market uncertainty plays an important role in the pricing behavior in this industry. We estimate the price elasticities of demand for leading brands and investigate the degree of market power in this industry.Market Value Maximization, AIDS, FIML, Model Selection, Risk and Uncertainty,

Two-stage oligopoly pricing with differentiated products: The Boston fluid milk market

This dissertation examines structural and reduced form models of differentiated products oligopoly. The Boston fluid milk market provides the empirical setting for this study. Using Information Resources Inc. scanner-data, it was possible to develop comprehensive market models that specify horizontal and vertical strategic interactions of the channel intermediaries (processors-retailers) and their demand and cost specifications. Within this framework, the impact of the Northeast Dairy Compact (NEDC) on the Boston fluid milk market is analyzed. ^ Dynamically, the estimated reduced form price reaction functions in Chapter-2, find that the lag structure of retail price response is short. In most case it is not more than two periods. The post-Compact period, competitive behavior of retailers changed dramatically with oligopolistic retail pricing becoming ‘soft’ as major retailers responded positively to each others price changes. ^ Chapter-3 develops a model for the analysis of the cost pass through rates (CPTR). We advance the theory and empirical analysis by introducing a disaggregate structural model that identifies strategic cross firm price shocks and corresponding pass through rates. This exercise finds that the pass-through rate due to changes in industry wide costs, i.e. the farm level milk price, is near 100%. CPTRs at the wholesale and retail level for firm specific cost shocks, however are approximately 50%. For the total channel, firm specific CPTRs are near 25%, the retail monopoly level. ^ The model in Chapter-4 incorporates recent developments in characteristics-based Nested Logit demand systems as well as a flexible Generalized Leontief cost function. The estimated retail level brand elasticities suggest that brand level competition is much stronger within a retail chain than across chains. Estimated profit margins across brands suggest higher margins for private labels. Analysis of the estimated Random Utility Model suggest that retail chains in Boston generate significant non-price utilities for consumers. ^ Regarding the NEDC, this research finds a significant price enhancing effect for the NEDC through focal point pricing. Both the estimated post-Compact profit margins and the estimated profit per period were higher after the Compact implementation.

Understanding Dynamic Retail Competition Through the Analysis of Strategic Price Response Using Time Series Techniques

This paper analyzes strategic retail pricing behavior in fluid milk in Boston and New York market using reduced form time series analysis. Pricing in Boston market is found to be more strategic than in the New York market. Plausible reasons can be due to retail pricing laws, ownership structures of retail chains, and brand loyalty. This paper also looks at the impact of North East Dairy Compact on retail pricing in Boston. Strategic pricing behavior in the Boston market changed dramatically and became less competitive after the Compact

Strategic Implications of Retail Pricing in the U.S. Fluid Milk Market

We explore brand level strategic interactions between skim/low fat and whole milk brands by estimating detailed price elasticity matrix using quadratic almost ideal demand system for eight major U.S. cities. Results of our analysis suggest that the market and demand behavior of skim/low fat and whole milk brands are different. Demand for skim/low fat milk is more elastic than in the case of whole milk. Highly inelastic demand for large number of Private label whole milk brands suggests 'loss leader' pricing strategy by the retailers. Such pricing strategy does not seem to be the norm in skim/low fat milk market

Oligopoly Pricing with Differentiated Products: The Boston Fluid Milk Market Channel

We model Boston fluid milk market after taking into account strategic interactions of the processors and retailers and estimate it using monthly propriety retail scanner data and other data from public sources from 1996 to 2000. Market demand is modeled using flexible nested logit demand system and processor level cost is modeled using flexible generalized Leontief cost function. Our modeled is flexible enough to capture the nature of competition between brands within store and across stores. We find that the brands compete much more vigorously within store and than across stores. This structure of competition fits squarely with Slade's (1995) assumption on retail competition. We also explore strategic implications of the North East Dairy Compact on retailers and processors using emerging methodologies of antitrust simulation. The predictions from the antitrust simulation analysis are consistent with the concept of "focal point pricing" at the Compact implementation, suggesting an increase of market power in the fluid milk marketing channel. Our estimated brand level total channel price cost margins also show that the margins increased after the Compact implementation