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Melitz Meets Milk: The Impact of Quota Abolition on EU Dairy Export Competitiveness
Author(s) -
Philippidis George,
Waschik Robert
Publication year - 2019
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/1477-9552.12276
Subject(s) - dairy industry , competition (biology) , computable general equilibrium , business , industrial organization , product (mathematics) , european union , international trade , diversity (politics) , international economics , economics , microeconomics , food science , chemistry , biology , ecology , geometry , mathematics , sociology , anthropology
Previous studies of EU milk quota abolition usually assume perfect competition ( PC ) in the dairy industry, despite evidence to the contrary. We use a global computable general equilibrium framework with an imperfectly competitive ( IC ) model variant, which offers insights into structural change (i.e. scale of output, firm entry/exit) and varietal diversity in the dairy industry. A heterogeneous‐firm Melitz extension enriches our analysis by endogenising the decision‐making process of domestic firms when exporting (or not) to specific foreign markets. The results from a PC CGE model variant are found to be consistent with respected market outlooks and official data. Furthermore, PC and IC variants generate broadly similar trends – a result corroborated in a previous study of Italian dairy firms. Our IC model prediction of a ‘shakeout’ among EU dairy firms is tentatively supported by actual observations. Finally, as an industry characterised by significant product innovation, increased extra‐ EU export orientation by remaining dairy firms increases varietal choice, which further boosts EU dairy exports compared with the PC model variant.