Private Supply Management and Market Power in the U.S. Dairy Industry

Abstract

Abstract This research analyzes the U.S. cheese industry dynamics (changes in wholesale cheese prices, milk price, margins, and the nature of wholesale cheese pricing) in light of a herd retirement program implemented by the Cooperatives Working Together (CWT) in the period of 2003–2010, which led to an antitrust lawsuit filed by cheese buyers against a group of dairy cooperatives and a large settlement. Presuming that they had a Capper-Volstead Act immunity, the CWT cooperatives acted in a cartel-like manner to decrease milk supply to increase and stabilize milk prices received by dairy farmers. While the program may have modestly increased seller market power of dairy farmers, seller market power of dairy cooperatives involved in cheese manufacturing decreased. This is because the cost of milk used in cheese manufacturing increased at a higher rate than wholesale cheese prices, which caused wholesale cheese margins to decrease.