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Keywords:

  • K21;
  • K23;
  • L11;
  • L13;
  • L66;
  • Q13

ABSTRACT

The study analyzes the effect of the New York State Milk Price Gouging Law 200% rule (June 1991–October 2008) on the nature of Class I milk price transmission and supermarket pricing strategies in the fluid whole milk market. This rule established that retail prices of fluid milk products higher than 200% of the Class I milk prices were unconscionably excessive. There is empirical evidence suggesting that supermarket whole milk pricing strategies and the nature of Class I milk price transmission tend to be different in the law period as compared to the period prior to the MPGL enforcement. During the pre-law period, supermarkets used retail price stabilization practice characterized by an incomplete and asymmetric price transmission. During the law period, supermarkets used marketing margin stabilization practice characterized by more than a complete and a much more symmetric price transmission. The institutional environment affected by the interaction of the analyzed regulatory mechanism and the changes taking place in the economic environment (increasing Class I milk price volatility and increasing concentration in the fluid milk processing and supermarket retailing) was likely to cause the observed changes in the supermarket whole milk pricing strategy and Class I milk price transmission process. [EconLit classifications: C33, C34, D12]. © 2012 Wiley Periodicals, Inc.