A Conjectural Variations Model of Reduced Japanese Milk Price Supports

Conjectural variations are estimated to determine the degree of imperfection in the Japanese milk market. Estimated conjectural variations indicate that the Japanese milk market is imperfectly competitive but is becoming more competitive. Our comparative static analysis indicates that when the milk support price is reduced, the fluid milk price will decline less under the current imperfectly competitive structure than it would under a competitive structure. Key words: conjecturat variation, imperfect competition, milk price, milk price supports, price discrimination. In light of chronic milk surpluses and world-wide movements toward reduced agricultural protection, estimating the effects of a milk sup-port price reduction is a particularly important topic. In most models used to make such esti-mates, price-taking behavior is assumed as the norm. 1 Milk markets, however, are not per-fectly competitive; in many countries, including Japan, there is price discrimination between fluid and manufacturing milk markets. In Japan, pre-fectural milk marketing boards have near-mo-nopoly control over milk supplies; some inter-prefectural competition exists among boards. Even if support prices are reduced, Japanese milk markets are unlikely to become perfectly com-Nobuhiro Suzuki is a researcher atthe National Research Institut