Question: Each year the state of Kentucky invites bids from dairies

Each year, the state of Kentucky invites bids from dairies to supply half-pint containers of fluid milk products for its school districts. In several school districts in northern Kentucky (called the “tricounty” market), two suppliers—Meyer Dairy and Trauth Dairy—were accused of price-fixing—that is, conspiring to allocate the districts so that the winning bidder was predetermined and the price per pint was set above the competitive price. These two dairies were the only two bidders on the milk contracts in the tricounty market for eight consecutive years. Did Meyer and Trauth conspire to rig their bids in the tricounty market? Economic theory states that, if so, the mean winning price in the rigged tricounty market will be higher than the mean winning price in the competitive surrounding market. Data on all bids received from the dairies competing for the milk contracts during the time period in question are saved in the MILK file. A MINITAB printout of the comparison of mean prices bid for whole white milk for the two Kentucky milk markets is shown below. Is there support for the claim that the dairies in the tricounty market participated in collusive practices? Explain in detail.

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  • CreatedMay 20, 2015
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