10 MASS. EXPERIMENT STATION BULLETIN 365 



Associated with the relative position of the distributors in the array is the 

 range in product-costs among those in each of the four groups. Except for one 

 of the extremes it tended to be small and fairly uniform; 11, 8, 7, and 8 cents 

 respectively. In other words, there was not a marked variation in the product- 

 costs of dealers within each group. 



The total range in costs is not, however, the sum of the group differences. 

 To them must be added the spread between the minimum and maximum costs of 

 adjacent groups, which for groups I and II was 14 cents. Between groups II 

 and III there was an overlapping of these costs of 2 cents and between groups 

 III and IV there was a spread of 3 cents. 



So far as cost of milk supply is concerned, one group of dealers can be set apart 

 as high product-cost operators. There was a relatively wide gap between this 

 group and the bulk of the dealers, whose product-costs decreased by neither 

 equal nor wide margins. 



Purchases of the Four Groups 



The sixteen Use-Plan^ dealers whose product-costs were arranged by groups 

 handled 85.6 percent of all purchases in the market. Group I, with the highest 

 product-costs, handled 31.5 percent of the quantity purchased by the sixteen 

 dealers; groups II and III handled 19.4 and 21.1 percent respectively; and group 

 IV, 27.8 percent. Within each group, a single dealer was outstanding because of 

 the large volume of purchases which he handled compared to the other dealers 

 in his group. The proportion of the group purchases handled by the principal 

 dealer in group I was 72.9 percent; in group II, 72.6 percent; in group III, 64.4 

 percent; and in group IV, 47.2 percent. 



A certain amount of orderliness seems evident in an industry heretofore com- 

 monly represented as disorderly. The orderliness, however, is one of organization, 

 hierarchical in form. 



Causes of Variation in Dealers' Costs F. O. B. the Market 



Since the relationship between producer and distributor in 1935 was essentially 

 on an agency basis, the only legitimate cause for variations in dealer's product-cost 

 was a variation in the amount of Class II milk handled. Under a system which 

 provided that distributors should use the established hundredweight prices for 

 Class I and Class II milk, the distributor's product-costs in a given pay period 

 would vary inversely with the percentages of Class II handled. Annual average 

 product-costs would vary among dealers, not only in relation to their proportion 

 of Class II but also in accordance with the pay period distribution of the Class II 

 milk throughout the year. 



The effect of variations among the dealers in the proportion of Class II milk 

 handled on their product -costs increased and diminished directly with changes 

 in the ratio of Class I and Class II prices. The closeness of the relationship is 

 shown graphically in figure 5. Within the limits of reasonable prices for Class I 



^Dealers who calculated product-cost on the "use" basis; i. e., includes so-called rating plan 

 dealers. 



