Transition from the planned to the market economy involved profound changesin Ukrainian economy. Before the liberalization of prices in 1992, milk processingin Ukraine was concentrated in regionally distributed large state milk processingfactories. In the meantime, the dairy sector has been privatized. However,the emerging privatization forms were heterogeneous. That is why differentkinds of market conduct and, consequently, market performance can beexpected, depending on ownership and incentive structures involved.Particular macroeconomic conditions have led to agricultural farms and milkprocessing factories dragging in conformation to the new situation. The necessaryeconomic reorganization has caused a considerable decrease in milk production.Therefore, the capacity utilization of milk processing industry in the1990s has strongly diminished. Due to this reason, the increase in averageproduction costs has lowered the sectoral profitability to a significant extent.Although at the beginning of the market-oriented transformation changes anduncertainties of this nature were to a large extent similar for agricultural andfood sectors in different Central and Eastern European countries, so far only littleis known about market conduct of milk processing enterprises.The descriptive analysis provides evidence of limited market transparencyand an influence of regional administrative authorities on regional trade withraw milk via trade restrictions. In such conditions milk processing enterpriseswere able to gain a regional monopsony or oligopsony position on the raw milkmarket, and, hence, there is reason to presume that they exercise market poweron that market. In addition, in 2002 the Antimonopoly Committee of Ukrainedetected price cartels among milk processing enterprises in some administrativeregions of Ukraine. This may be interpreted as a prerequisite for the exerciseof market power on the part of milk processing industry. On the other hand,because of low concentration of milk processing industry at the national level,the assumption about competition cannot completely be dismissed. Moreover,the low capacity utilization of milk processing industry and, consequently, thecompetition for raw milk stand against the hypothesis about existence of marketpower.Since the 1980s, in studies analyzing imperfect competition on agriculturaland food markets, quantitative approaches have increasingly been based onmicroeconomic theory and on concepts of New Empirical Industrial Organization(NEIO). The NEIO approach was applied in numerous studies on market structure and pricing on agricultural and food markets. The applications, however,have more or less been limited to developed market economies such as theUSA, Canada and others. On the other hand, due to the transition from a plannedto a market economy, in countries such as Ukraine, there is also reason to expectmarket conditions on agricultural and food markets which considerably deviatefrom the model of perfect competition.For the analysis of the market structure and pricing on the Ukrainian raw milkmarket, a comparative static structural model has been built. The model consistsof a short-run supply function for raw milk on one side and of the firstorder condition for profit maximization for the raw milk demand of milkprocessing enterprises on the other side. An important advantage of the marketstructural model is that the existence of market power can be explicitly tested.For econometric analyses, aggregate industrial (market) data at both, nationaland regional level as well as data at the level of the individual firm can be used.Before the specification and estimation of the market structural model, as afirst step the production technology of the milk processing industry and the rawmilk supply in Ukraine have been econometrically investigated. The results ofthe econometric analysis of production and supply functions were used to analyzethe market structural model.Different special cases of the production function for the Ukrainian milkprocessing industry were econometrically estimated based on the transcendentallogarithmic (translog) functional form showing differences both, in the scaleelasticity and in the rate of technological progress. The estimated scale elasticityin the special case of a Cobb-Douglas production function is statistically significantand amounts to 1,4. Due to this result, there is evidence of increasingreturns to scale in Ukrainian milk processing industry. Results considerablydiverging from the Cobb-Douglas case are obtained from the estimation ofproduction elasticities based on a non-restricted translog production function.Negative production elasticities are obtained for the production factors labor andcapital. This can be associated with under-utilization of capacities of Ukrainianmilk processing plants. Furthermore, the results have to be interpreted againstthe background of the change of social and institutional basic conditions inUkraine. Therefore, the results obtained from estimating the neoclassical Cobb-Douglas production function, have to be interpreted carefully.Consequently, with regard to the market structural model for the Ukrainianraw milk market, it seems to be problematic to specify the production technologyof the milk processing industry as a neoclassical production function.This can be attributed to the specific situation in the industry during the transformationprocess. Hence, the non-restricted translog production function hasbeen used within the scope of the market structural model.In numerous studies, the estimation results for agricultural supply functionswere presented. The functions have been estimated on the basis of either single equation models or multiple equation models as a part of a complete systemof supply and factor demand functions for the agricultural sector. However, inmost cases, the modeling was carried out for both, single equation models andmultiple equation models, assuming perfect competition. With regard to themodeling of the market structural model, some aspects and problems aboutderivation of supply functions from a variable profit function are discussed,and an overview about empirical supply and factor demand functions in theNEIO-studies is given. Afterwards estimation results for several versions ofthe supply function for raw milk of the Ukrainian agricultural sector are discussed.The main objective of the econometric analysis, however is to measure themarket power of milk processing enterprises on the Ukrainian raw milk market,within the analytical framework of a market structure model which is basedon the theoretical concepts of NEIO. The model serves to estimate a marketpower parameter and to test econometrically for the existence of market power.It is specified taking into account the estimation results for the productionfunction of the milk processing industry and the supply function for raw milk.The results of the econometric estimation of the model do not show evidenceof the exercise of market power by Ukrainian milk processing industry overthe sample period from January 1996 to December 2003. Since aggregate dataon the national level is used in the estimation, the results relate only to theoverall raw milk market in Ukraine. In terms of market structure of Ukrainianmilk processing industry at the national level the results are somewhat plausiblebecause the Herfindahl-Hirschman index (for 2001) is 7, which is relativelysmall compared with other countries. Moreover, the results of the descriptivepart of the work show that the market structure in the Ukrainian milk processingindustry has not changed over the sample period. However, it is necessary tonote, that the available industry data at the national level are too highly aggregatedfor a final decision about the existence of market power.Considering the structure of the milk processing industry on the regional marketsand also the basic conditions on the market for raw milk, the existence of marketpower cannot be excluded. The descriptive analysis shows that in 8 of 25 regionsthe Herfindahl-Hirschman index is larger than 200. For a determination of therelevant market boundaries the regional market for raw milk seems to be ofprime importance for the analysis. Therefore, in order to make final statementsabout the existence of market power in future studies disaggregated industrydata should be used for the estimation of market structural models at the regionallevel.