Spatial competition of food processors in pure and mixed markets under uniform delivered pricing

The spatial dimension of most agricultural raw product markets (e.g., milk) and the high concentration of food processors facilitate the exercise of market power towards farmers. In the milk sector, processors that are investor-owned firms (IOFs) compete alongside processing cooperatives (COOPs) in a “mixed market”. According to the “yardstick of competition” hypothesis COOPs are regarded as a means to mitigate the market power of IOFs. This thesis theoretically analyzes spatial competition of processors in a pure IOF market, a pure COOP market and a mixed market under uniform delivered pricing. The analytical results confirm a competitive yardstick effect, but the strength of this effect crucially depends on the behavior of the IOF in the mixed market.