Strategic Implications of Retail Pricing in the U.S. Fluid Milk Market

We explore brand level strategic interactions between skim/low fat and whole milk brands by estimating detailed price elasticity matrix using quadratic almost ideal demand system for eight major U.S. cities. Results of our analysis suggest that the market and demand behavior of skim/low fat and whole milk brands are different. Demand for skim/low fat milk is more elastic than in the case of whole milk. Highly inelastic demand for large number of Private label whole milk brands suggests 'loss leader' pricing strategy by the retailers. Such pricing strategy does not seem to be the norm in skim/low fat milk market