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Cost pass-through in the Swedish coffee market

Journal article
Authors Dick Durevall
Published in European Review of Agricultural Economics
Volume 45
Issue 4
Pages 505–529
ISSN 0165-1587
Publication year 2018
Published at Gothenburg Centre for Globalization and Development (GCGD)
Department of Economics
Pages 505–529
Language en
Links https://doi.org/10.1093/erae/jby002
Keywords L89 - Other, L13 - Oligopoly and Other Imperfect Markets, L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
Subject categories Economics

Abstract

Cost pass-through to retail prices shows how changes in marginal costs are allocated between producers and consumers, and it is, therefore, closely related to market structure and competition. This paper uses Swedish data on coffee products at the barcode level to evaluate pass-through from the cost of green coffee beans, the main marginal cost, to the retail price of roasted and ground coffee. First long-run cost pass-through is estimated for each product, and then regression is used to analyse how pass-through varies across market shares, retailer-owned brands and other product characteristics. A general result is that pass-through is roughly complete for products with large market shares, while those with small market shares have low pass-through rates. There is no evidence that retailer-owned brands have higher pass-through than brand-name products with similar market shares, which would be the case if retailer-owned brands avoided double marginalisation through vertical integration. Thus, although there is not perfect competition in the Swedish coffee market, a large part of it appears to be highly competitive.

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