A marketing margin model that allows testing for constant returns to scale technology and asymmetric marketing costs and farm price transmissions is proposed. Results indicate that a constant returns to scale technology cannot be rejected. During the period prior to the enactment of the price gouging law in June 1991 by the New York State Legislature, significant short-run and long-run asymmetries in both marketing costs and farm price transmissions were identified. After 1991, these asymmetries were no longer significant or were reduced substantially. Finally, the legislative change that occurred in 1987, allowing Farmland Dairies' entry into the New York City fluid milk market, contributed significantly to reducing marketing margins in the New York City fluid milk market. [EconLit Citations: D400, C300] © 2002 Wiley Periodicals, Inc.

A hybrid approach to estimate the asymmetric price transmission between the farm gate and the retail market is proposed. The model is estimated for the fluid milk market of the Northeast U.S., that of the metropolitan area of New York City as well as that of Upstate New York. Spatially disaggregated data allows the impact of regional dairy regulation on the farm-retail price spread to be assessed, as well as the behavior of the middlemen regarding price transmission on markets with different levels of retail concentration to be estimated. Results suggest that intermediaries transmit variations in milk farm price in an asymmetric way in the short-run; that governmental intervention might force middlemen to act competitively in terms of price transmission; and that a high degree of concentration at the retail level is not synonymous with inefficient price transmission.