Entry deterring effects of contractual relations in the dairy processing sector

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.

Issue Date:
Publication Type:
Journal Article
DOI and Other Identifiers:
ISSN 2280-6180 (print) (Other)
ISSN 2280-6172 (online) (Other)
DOI: 10.13128/BAE-16492 (Other)
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PURL Identifier:
Published in:
Bio-based and Applied Economics Journal, 05, 1
Page range:
Total Pages:
JEL Codes:
L13; L14; L41

 Record created 2017-04-01, last modified 2020-10-28

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