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Abstract

The spatial dimension of the raw milk market facilitates the exercise of oligopsonistic power of milk processors towards farmers. At the same time, the market is characterised by a high share of processing cooperatives (coops). Hence, coops compete with investor-owned firms (IOFs) in a mixed market. Assuming uniform delivered pricing, we theoretically analyse spatial competition in a mixed market. Our theoretical and empirical results for Bavarian milk processors confirm the so-called “competitive yardstick effect”, i.e. coops can mitigate the oligopsony power of IOFs. In our theoretical model, the strength of this effect depends on the behaviour of IOFs.

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