Friday, July 15, 2011
The Impact of the New York State Retail Milk Price Regulation on Farm-to-Retail Price Transmission and Supermarket Pricing Strategies in Metropolitan Fluid Milk Markets
Posted by D. Daniel Sokol
Yuliya V. Bolotova and Andrew M. Novakovic (both Cornell University Charles H. Dyson School of Applied Economics and Management) describe The Impact of the New York State Retail Milk Price Regulation on Farm-to-Retail Price Transmission and Supermarket Pricing Strategies in Metropolitan Fluid Milk Markets.
ABSTRACT: The New York State Milk Price Gouging Law establishes that the retail prices of fluid milk products are not to exceed 200% of the prices that NYS milk processors py for Class I milk. The enforcement of this law significantly affected the nature of the Class I fluid milk price transmission process and the milk pricing strategies of supermarkets in the five largest cities in New York State: New York City, Albany, Syracuse, Buffalo and Rochester. During the pre-law period, supermarkets used a retail price-stabilization strategy, as evidenced by asymmetric Class I fluid milk price transmission. In contrast, supermarkets use a retail profit stabilization strategy during the law period. This variation of retail milk price control actually creates an institutional environment that facilitates cooperative conduct of supermarkets, acting in an oligopolistic market environment, which caused greater instability in retail milk price! s. Differences in the competitive environments of each city impact the effects of the statewide law.