Abstract:This paper examines the ability of a large numbers cartel to raise price--cost margins. The cartel in question is a dairy cooperative, Associated Milk Producers, Inc. (AMPI), with more than 30,000 members. We develop a model of spatial limit pricing that we test using the method of Seemingly Unrelated Regressions, adjusting for serial correlation. Our results suggest that the cartel successfully obtained and used market power and that its power was proportional to its market share. In contrast, after an antitrust consent decree, margins fell significantly and were no longer related to market shares. These results are robust under both pooled and market fixed effects analysis. <BR> Recent theoretical analyses suggest that, contrary to popular belief, a large numbers cartel may be able to raise and maintain price--cost margins in excess of competitive levels. We test this hypothesis using data drawn from a large dairy cooperative, Associated Milk Producers, Inc., with more than 30,000 members. Unique features of the milk industry allow us to construct an economically meaningful measure of the price--cost margin for well-defined markets.

    Subjects: Cartels; Cooperative societies; Monopolies; Pricing; Prices; Cooperative dairy industry; Market share; Milk industry; Dairy product (except dried or canned) merchant wholesalers; Fluid milk manufacturing; Competition

全文链接