The Impact of the New York State Milk Price Gouging Law on the Price Transmission Process and Supermarket Pricing Strategies in the Fluid Whole Milk Market

The study analyzes the effect of the New York State Milk Price Gouging Law 200% rule (June 1991 October 2008) on the nature of Class I milk price transmission and supermarket pricing strategies in the fluid whole milk market. This rule established that retail prices of fluid milk products higher than 200% of the Class I milk prices were unconscionably excessive. There is empirical evidence suggesting that supermarket whole milk pricing strategies and the nature of Class I milk price transmission tend to be different in the law period as compared to the period prior to the MPGL enforcement. During the pre-law period, supermarkets used retail price stabilization practice characterized by an incomplete and asymmetric price transmission. During the law period, supermarkets used marketing margin stabilization practice characterized by more than a complete and a much more symmetric price transmission. The institutional environment affected by the interaction of the analyzed regulatory mechanism and the changes taking place in the economic environment (increasing Class I milk price volatility and increasing concentration in the fluid milk processing and supermarket retailing) was likely to cause the observed changes in the supermarket whole milk pricing strategy and Class I milk price transmission process. [EconLit Classifications: K21, K23, L11, L13, L66, Q13]. (C) 2012 Wiley Periodicals, Inc.