The degree of vertical and horizontal competition among dairy cooperatives, processors and retailers in Japanese milk markets

In this paper, we present a conceptual bilateral oligopoly model for measuring the degree of "vertical power balance" or the comparative degree of market power between sellers and buyers in Japan's fluid milk market. The model also simultaneously measures the degrees of horizontal competition among sellers, as well as horizontal competition among buyers. We estimate the model based on available data and several simplifying assumptions, in order to illustrate how the model could be tested. The results presented here are tentative due mainly to data constraints, but they constitute the first econometric evidence supporting the general perception that retailers, though they face nearly perfect horizontal competition among each other, have extremely dominant vertical market power over fluid milk processors. Also, the results constitute the first econometric evidence that processors may have some vertical market power over dairy cooperatives.