The Kentucky Milk Case
Report on a Statistical Analysis of a Potentially Collusive Market Environment
Yara Issa
MGMT 501 – Fall 2020
The University
... [Show More] of New Mexico
Yara Issa
The Kentucky Milk Case
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Table of Content
Introduction …........................................................................................................................... 3
Market Share …......................................................................................................................... 4
Incumbency Rate …................................................................................................................... 4
Appendix ……………………………………………………………………………………………………………………………. 6
Yara Issa
The Kentucky Milk Case
2
This study source was downloaded by 100000831446146 from CourseHero.com on 09-10-2021 11:24:18 GMT -05:00
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Introduction
The Kentucky Milk Case
Sometime between May and August every year, school district officials throughout Kentucky put
up bids on annual supply contracts for milk. In response, dairies submit sealed bids. Usually, the
low bidder is selected to supply milk in half pints to the schools during the following school year.
Between 1983 and 1991, Meyer and Trauth Dairies were the only two bidders in the market for
school milk provisions in the Tri-county region of Kentucky, while there was a significantly higher
number of bidders in the 11 other school districts of the “surrounding” market.
This information potentially raises the question of collusive activity between Meyer and Trauth.
This requires an analysis of the bids looking for empirical evidence of collusion in tri-county. The
following report will look into finding evidence of collusion by analyzing the following variables:
- Year
- Market (tri-county and surrounding market)
- Winning dairy (Winner)
- WWBID / LFWBID / LFCBID or the winning bid price ($/half pint) of whole white milk /
low fat white milk and low fat chocolate milk
- WWQTY / LFWQTY / LFCQTY or the quantity of the winning bid for whole white milk /
low fat white milk and low fat chocolate milk
- District
- KYFMO or the Federal Milk Order Minimum Raw Cost of Milk ($/half pint)
- MILESM / MILEST or the miles from Meyer / Trauth to the school district
- LETDATE or the date on which bidding started.
Collusion is most likely to occur in an environment where there are few sellers, homogenous
product, inelastic demand and similar costs. In order to find evidence of collusion, data will be
analyzed looking for the following indicators:
- Stable or equal market shares over time for dairies under investigation
- Incumbency rates exceeding 70%
- Lower dispersion among winning bids
- Uncorrelated bid price with cost and distance
- Constant or slightly increasing price patterns of sequential bids with the same dairy
winning year after year
- Significantly higher mean winning price [Show Less]