Journal of Economics
Vol. 30, No. 2, Summer
Ohio school milk markets: an analysis
Robert H. Porter*
J. Douglas Zona**
We examine the institutional details of the school milk procurement process, bidding
data, statements of dairy executives, and supply characteristics in Ohio during the
1980s. We compare the bidding behavior of a group of firms in Cincinnati to a control
group. We find that the behavior of each of the firms differs from that of the control
group. We argue that the behavior of these firms is consistent with collusion. The
estimated average effect of collusion on market prices is about 6.5%, or roughly the
cost of shipping school milk about 50 miles.
Sometime between May and August every year, school district officials throughout
the country independently solicit bids on annual supply contracts for milk and other
products. In response to these solicitations, dairies that are in a position to supply school
milk submit bids on these procurement contracts. Typically, the low bidder is selected
to supply milk in half-pints to the schools during the following school year. As we
describe below, the details of the procurement process, the nature of milk processing
and delivery, and the characteristics of demand for school milk are such that collusive
agreements among suppliers may be relatively easy to reach and maintain. Collusion
appears to be a pervasive phenomenon in school milk auctions.1 There have been recent
price-fixing investigations of procurement auctions for the provision of school milk in
more than twenty states. Guilty pleas have been entered in at least a dozen states, with
fines levied in excess of $90 million. About ninety people have been sent to jail, for
six-month sentences on average.
In State of Ohio v. Louis Trauth Dairies, Inc. et al., thirteen dairies were charged
with collusion in school milk auctions for the years 1980 through 1990 inclusive. As
Bureau of Economic
This article is adapted from our reports and statements
on behalf of the plaintiff
in State qf Ohio v.
Louis Trauth Dairies,
Inc. et al. The case was settled before it came to trial. We received
Barth, Tim Bresnahan,
Lou Guth, Wick Heath, Jim Hosek,
and two anonymous
as well as from the participants
in a number of seminars.
See, for example,
and Baquet (1993).
Copyright ? 1999, RAND