Factors That Affect Bargaining Outcome : Evidence from Class I Milk Price in the US Raw Milk markets

This paper models and investigates the factors that affect bargaining outcomes in the US raw milk markets with observed evidence of bargaining between dairy cooperatives and milk bottlers. Reduced form of price and mark-up equations under bargaining are derived and estimated empirically in this paper. It is showed that the over-order premium that is the outcome of bargaining between diary cooperatives and milk bottlers is positively correlated with the demand shifters that move demand curve upwards whereas negatively correlated with the demand shifters that move demand curve downwards. The estimation results in this paper suggest that the rise in the opportunity costs gives less incentive to make efforts in the bargaining.