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Abstract

This paper examines structural and strategic factors affecting price determination in the branded cottage cheese industry. Special emphasis is placed on the presence and conduct of cottage cheese brands marketed by dairy cooperatives. The data examined in this study cover cottage cheese sales in 47 markets for the fourth quarter of 1988. We find evidence supporting the premise that market power is being exercise in the cottage cheese market. One of the strongest influences of the price of cottage cheese is the extent of market penetration of the brand. Brands' prices rise with an increase in the price of private label cottage cheese. We also find strong evidence that cooperatives are not exercising market power. Cooperatives charge a lower price than their IOF competition under the same conditions and, unlike their IOF competition, co-ops do not capitalize on higher share to raise price. Moreover, the presence of cooperatives in a market brings the price of competing brands down. Cooperatives do not differ greatly from IOFs in the use of merchandising tools, using them as much or slightly more in most cases.

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