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Abstract
This article aims to evaluate the degree of competition in
the dairy industry, in the relevant markets of Ultra High Temperature
(UHT) milk and pasteurized milk, by means of price transmission and
marketing margin behavior. The empirical analysis is based on the model
formerly proposed by Houck (1977) and latter detailed by Carman and
Sexton (2005).This model analyzes separately the effects of input price
increases and reductions on consumer prices, allowing for estimations
of price transmission and margin behavior. Cepea-USP and Fipe provide,
respectively, weekly input prices and consumer prices, both for the
period of December 1999 to December 2005. As a major result, the degree
of competition in the UHT relevant market was found to be robustly
different from the pasteurized milk market. Whereas in the first price
transmission corroborates the hypothesis of competitive market, in the
pasteurized milk market there is evidence of imperfections both in price
transmission and margin behavior. The outstanding increase of UHT
milk consumption has fostered competition and liquidity in the dairy
industry and milk distribution, allowing for faster price transmission
throughout the production chain. Nevertheless fixed markup pricing
found in the UHT relevant market shows that dairy industry and milk
distribution have some degree of market power so as nominal changes
in input prices are passed through consumers in a larger magnitude.