Oligopoly and Price Transmission in Turkey's Fluid Milk Market

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ABSTRACT

Farmers and consumers suspect that processing firms abuse their power in the milk marketing chain by engaging in price fixing behavior. The author employs threshold autoregressive and moment threshold autoregressive tests, and contrary to expectations, finds evidence for a downward trend in wholesale milk price without a corresponding decline in farm-gate prices. The downward trend coincides with increased competition in the dairy industry and with the growing market share of the formal sector at the expense of the informal sector. Major dairy processing firms expand their market share and yet continue to enjoy healthy profits thanks to increasing returns due to economies of scale in their processing and distribution operations in a growing market.

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