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Milk Bidding Wars: Data Driven Decision Making - Case Study 3

1) The study analyzes milk bidding data from Northern Kentucky school districts during the 1980s and 1990s to determine if collusive practices existed between the two main dairy suppliers, Meyer and Trauth. 2) Statistical analysis using t-tests found extremely significant differences between the average milk bid prices in the tri-county region versus surrounding areas, indicating the tri-county bids were higher. 3) This difference provides evidence that the duopoly structure in the tri-county region likely resulted from collusive practices between Meyer and Trauth dairies, rather than natural market forces.

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Alex Nicholson
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268 views4 pages

Milk Bidding Wars: Data Driven Decision Making - Case Study 3

1) The study analyzes milk bidding data from Northern Kentucky school districts during the 1980s and 1990s to determine if collusive practices existed between the two main dairy suppliers, Meyer and Trauth. 2) Statistical analysis using t-tests found extremely significant differences between the average milk bid prices in the tri-county region versus surrounding areas, indicating the tri-county bids were higher. 3) This difference provides evidence that the duopoly structure in the tri-county region likely resulted from collusive practices between Meyer and Trauth dairies, rather than natural market forces.

Uploaded by

Alex Nicholson
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Data Driven Decision Making – Case Study 3

Clark SOM

Milk Bidding Wars


By Alex Nicholson
Attached is the Dataset Kentucky MILK2.xlsx containing all data and statistical
calculations used to formulate the following market analysis.

May 1st, 2021


Background & Introduction
The Kentucky school milk market during the 1980’s and 1990’s was suspect to collusive
practices that had affected other milk markets across the nation. Potential collusion involving the
Meyer and Trauth dairies motivated a study on the data of school milk suppliers in Northern
Kentucky. Collusive business practices can be dangerous to the free market because they
encourage monopolies and often lead to high prices for consumers. From 1983 to 1991, there
were only two dairies that supplied milk to the tri-county region while other regions had a far
more diverse supply portfolio. A plethora of dairies exist in the area and contributed to the
supply of the surrounding market. Meyer and Trauth also sometimes supplied to the surrounding
market as well. However, no dairy was able to ever breach the Tri-county school milk supply
market. This created a duopoly for the tri county market, identifying if this duopoly was natural
or through collusion is the next challenge. Of the two dairies that are mainly being questioned for
collusive activities, one Meyer has freely admitted their acts of collusion, while the Trauth has
denied any involvement in any form of collusion.
The Problem
Is there an issue in the Kentucky school milk supply market? If so, is it an issue of collusion?
What patterns within the data can be identified to identify material proof of collusion? Who
benefits and who loses due to this market dynamic?
Methodology
In order to identify any evidence of a pattern within the sealed bids for milk contracts in
Northern Kentucky we can set up a hypothesis test on the bid prices for each type of milk. This
will reveal if there is a significant difference between two groups. By running a t-test for two
samples assuming unequal variance we can use the sample means for the surrounding area and
the tri county area and compare it for a significant difference from the hypothesized mean of 0. If
there is a significant difference given a 5% significance level, we can conclude that there is a
difference that is probably due to the duopoly in the Tri-County area.
Data Description
Surrounding: The surrounding area where milk bid data has been collected in Kentucky
Tri-County: Covers an area of 13 school districts spread throughout 3 main regional counties of
Northern Kentucky.
Null Hypothesis H0 = 0
Alternative Hypothesis Ha ≠ 0
Data Analysis
To display the conclusions that were drawn from the data, below are the three calculations that
allowed us to identify statistical significance using the hypothesis testing.

t-Test: Two-Sample Assuming Unequal Variances


Whole White Milk
Surroundin
  g Tri-County
Mean 0.13309173 0.143062
Variance 0.00024939 0.00017653
Observations 254 100
Hypothesized Mean Difference 0
df 214
t Stat -6.015402
P(T<=t) one-tail 3.8388E-09
t Critical one-tail 1.65200516
P(T<=t) two-tail 7.6775E-09
t Critical two-tail 1.97111126  

- Extremely large t stat


- Extremely low P- value
- Significant therefore reject the null hypothesis

t-Test: Two-Sample Assuming Unequal Variances


Low Fat White Milk
Surroundin
  g Tri-County
Mean 0.12420388 0.13664912
Variance 0.00027422 0.00018402
Observations 258 114
Hypothesized Mean Difference 0
df 261
t Stat -7.6063469
P(T<=t) one-tail 2.5588E-13
t Critical one-tail 1.65071273
P(T<=t) two-tail 5.1176E-13
t Critical two-tail 1.96909472  

- Extremely large t stat


- Extremely low P- value
- Significant therefore reject the null hypothesis

t-Test: Two-Sample Assuming Unequal Variances


Low Fat Chocolate Milk
Surroundin
  g Tri-County
Mean 0.12505212 0.14014286
Variance 0.00029467 0.00022345
Observations 259 70
Hypothesized Mean Difference 0
df 123
t Stat -7.2523033
P(T<=t) one-tail 1.998E-11
t Critical one-tail 1.6573364
P(T<=t) two-tail 3.9961E-11
t Critical two-tail 1.97943869  

- Extremely large t stat


- Extremely low P- value
- Significant therefore reject the null hypothesis

Conclusion
There are a variety of indicators that can reveal whether a collusive environment in
indeed occurring. One of the ways is to highlight a disparity in bid prices. Variability among bids
is observed in collusive markets. It is apparent from the three included hypothesis tests that the
bids in the surrounding area are not equal to the successful bids in the Tri-county bids. This trend
of bid disparity provides evidence for the financial implications of collusion.

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