Pricing behaviour of cooperatives and investor-owned dairies in a spatial market setting

This study analyses spatial competition in Germany’s raw milk market differentiating between cooperatives and investor-owned firms. We assess the impact of the own legal form and that of neighboring competitors on the pricing behavior. The focus of the empirical analysis is on the relations of space, measured as the average distance to competing neighbours, and raw milk prices. The results allow testing the shape of the relationship between price and space derived theoretically in the literature. For the south of Germany we find a negative relationship between space and raw milk price while for the north the relationship is positive. In both north and south the effect is stronger for cooperative compared to investor-owned firms. Further, we test for the competitive yardstick effect for which we find only small evidence in the south. The estimation is based on a data set covering all German dairies from 2001 to 2012 providing information on raw milk prices, processing quantities, legal and production form