The Effect of the New York State Milk Price Gouging Law on the Performance of Fluid Whole Milk Market: An Empirical Analysis

The paper analyses the effect of the NYS Milk Price Gouging Law 200% rule (June 1991-October 2008) on the behavior of retail prices and marketing margins of fluid whole milk products sold in the largest New York State cities (New York City, Albany, Syracuse, Buffalo and Rochester). This rule established that retail prices of fluid milk products were not to exceed 200% of Class I fluid milk prices that milk processors paid for raw milk to dairy farmers. The law was enforced by the NYS Department of Agriculture and Markets (NYSDAM) by announcing the maximum retail price thresholds on a monthly basis. The empirical evidence presented in the paper may suggest that this particular design of retail milk price control, in conjunction with publicly announced government-set Class I fluid milk prices, actually created an institutional environment that facilitated interdependent conduct of supermarkets operating in the oligopolistic market environment. Retail prices, marketing margins and the estimated supermarket profit tend to be higher during the law period as compared to the pre-law period. Supermarkets were pricing at the NYSDAM maximum retail price threshold level, if it was profitable for them. This was the case of fluid whole milk sold in half-gallon containers in all analyzed cities and fluid whole milk sold in gallon containers in New York City.