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Market power in the German dairy supply chain

Author

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  • Grau, Aaron
Abstract
The German dairy supply chain is one of the most important agrifood supply chains in Germany. In 2015, raw milk production accounted for 19.2% of the total domestic agricultural production value and dairy products summed up 8.0% of total German agrifood exports. Nevertheless, the economic success of the supply chain is overshadowed by reports on market power abused by dairies and retailers. Fueled by complaints of dairy farmers and dairies on non-competitive behavior of downstream supply chain agents, the German anti-trust agency conducted a sector analysis between 2008 and 2012. In its final report the anti-trust agency acknowledged the threat of oligopsony power at both markets, raw milk and dairy output market, but could not find any evidence. Thus, the main premise of the presented work is to empirically investigate the German dairy supply chain for the existence of oligopsony power at the raw milk and dairy product market. Three approaches, structure-conduct-performance paradigm (SCPP), new empirical industrial organization (NEIO), and asymmetric price transmission (APT), are revised and their suitability for the empirical application discussed. The theory review shows that none of the discussed approaches provide a model that fits the structure of the German dairy supply chain of oligopsonistic threat on two vertically integrated markets. Additional characteristics of the theoretical frameworks limit their suitability for the study further. Either the data requirements are high and the models highly complex, like in the case of NEIO, but an index of market power can be measured, or the data requirements are rather low and the theoretic models rather simple, like in the case of APT, but market power or its extent are not clearly identified. Consequently, a modification of one of the approaches is not sufficient and a new theoretical model merging aspects of NEIO and APT had to be developed. [...]

Suggested Citation

  • Grau, Aaron, 2018. "Market power in the German dairy supply chain," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 90, number 90, September.
    • Handle: RePEc:zbw:iamost:90
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    References listed on IDEAS

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    1. Rudolf Wolffram, 1971. "Positivistic Measures of Aggregate Supply Elasticities: Some New Approaches—Some Critical Notes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 53(2), pages 356-359.
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    Cited by:

    1. Piotr Borawski & Marta Guth & Wojciech Truszkowski & Dagmara Zuzek & Aneta Beldycka-Borawska & Bartosz Mickiewicz & Elzbieta Szymanska & Jayson Kennedy Harper & James William Dunn, 2020. "Milk price changes in Poland in the context of the Common Agricultural Policy," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 66(1), pages 19-26.
    2. Musa Abdu & Adamu Jibir, 2019. "Sources of Market Power among Firms in Sub-Saharan Africa: Do Institutions Matter in Competitive Policies?," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 24(2), pages 115-148, July-Dec.
    3. Yizao Liu & Xuan Chen & Adam N. Rabinowitz, 2019. "The role of retail market power and state regulations in the heterogeneity of farm‐retail price transmission of private label and branded products," Agricultural Economics, International Association of Agricultural Economists, vol. 50(1), pages 91-99, January.
    4. Hirsch, Stefan & Barissoul, Ayoub & Möhring, Niklas & Koppenberg, Maximilian, 2024. "Market power, profitability and the decision to exit organic dairy farming in the EU," IAAE 2024 Conference, August 2-7, 2024, New Delhi, India 344258, International Association of Agricultural Economists (IAAE).
    5. Rizwan Abbas & Gehad Abdullah Amran & Irshad Hussain & Shengjun Ma, 2022. "A Soft Computing View for the Scientific Categorization of Vegetable Supply Chain Issues," Logistics, MDPI, vol. 6(3), pages 1-17, June.
    6. Valeria Borsellino & Emanuele Schimmenti & Hamid El Bilali, 2020. "Agri-Food Markets towards Sustainable Patterns," Sustainability, MDPI, vol. 12(6), pages 1-35, March.
    7. Maximilian Koppenberg & Stefan Hirsch, 2022. "Output market power and firm characteristics in dairy processing: Evidence from three EU countries," Journal of Agricultural Economics, Wiley Blackwell, vol. 73(2), pages 490-517, June.
    8. Čechura, Lukáš & Jamali Jaghdani, Tinoush, 2021. "Market imperfections within the European wheat value chain: The case of France and the United Kingdom," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 11(9).
    9. Alessandro Bonanno & Carlo Russo & Luisa Menapace, 2018. "Market power and bargaining in agrifood markets: A review of emerging topics and tools," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 6-23, December.
    10. repec:ags:aaea22:335708 is not listed on IDEAS
    11. Maximilian Koppenberg, 2023. "Markups, organic agriculture and downstream concentration at the example of European dairy farmers," Agricultural Economics, International Association of Agricultural Economists, vol. 54(2), pages 161-178, March.

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