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A Structural Model of the Analysis of Retail Market Power: The Case of Fluid Milk
Author(s) -
Hovhannisyan Vardges,
Gould Brian W.
Publication year - 2012
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aar124
Subject(s) - profit maximization , almost ideal demand system , quadratic equation , profit (economics) , utility maximization , microeconomics , economics , market power , econometrics , maximization , product (mathematics) , industrial organization , business , mathematics , mathematical economics , monopoly , production (economics) , geometry
We derive a structural model of firm behavior that is composed of the Generalized Quadratic Almost Ideal Demand System to represent both consumers’ milk preferences and firm profit maximization conditions that allow for a range of competitive scenarios. The importance of this specification is found in its fuller representation of consumer preferences, as opposed to the Linear Approximate Almost Ideal Demand System used in previous analyses. We apply this structural framework to investigate retailer conduct in the sale of beverage milk in a U.S. market using product‐level data. Our Lerner Index estimates show that retailers are not perfectly competitive. However, this deviation is small.