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The impact of market deregulation on milk price: A dynamic panel data approach

Fotis, Panagiotis and Polemis, Michael (2018): The impact of market deregulation on milk price: A dynamic panel data approach.

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Abstract

The scope of this paper is to investigate the impact of market deregulation on the competitiveness of raw milk producers in Greece along the suggested lines of OECD (OECD, 2014). The study uses a dynamic panel data approach, to assess changes in the relative competitiveness of milk producers as a result of certain deregulation policies imposed by the Greek government in two phases (May 2014 and September 2015). In order to account for the presence of cross-sectional dependence and non-stationarity, the empirical analysis implements novel panel econometric methodology namely Common Correlated Effects (CCE) and Augmented Mean Group estimators (AMG). Our sample uses micro level data drawn from the 45 Greek regions spanning the period from January 2010 to October 2017. By comparing the wholesale prices of milk affected by regulation before and after the policy changes, we infer that abolishing regulation led to an increase in the prices of the wholesalers and thus in their profitability levels. Moreover, we argue that the openness of the relevant milk market segment had significant implications to the level of competition in the sector. Lastly, our empirical findings which confirm the OECD competition guidelines in the milk sector remain rather robust under different empirical methodologies and sample splitting, providing a focal point to policy makers and government officials for the ex-post evaluation of the deregulation strategies.

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