An analysis of asymmetric consumer price responses and asymmetric cost pass-through in the French coffee market

Céline Bonnet and Sofia Villas-Boas

European Review of Agricultural Economics, 2016, vol. 43, issue 5, 781-804

Abstract: We empirically analyse a possible channel for the existence of asymmetric price-cost pass-through, that is, of prices responding differently to negative and positive upstream cost shocks. While the existence of asymmetric price-cost pass-through has been documented in many markets, possible causes for such a phenomenon have not been investigated empirically. Using consumer panel data in the coffee retail sector in France, we structurally estimate a demand model allowing for asymmetric consumer responses to positive and negative retail price changes. According to the demand estimates, we indeed find significant evidence that consumers react differentially to positive and negative price movements, in that demand is less elastic to price increases than to price decreases. Then, using counterfactual simulations within an equilibrium model of demand and supply side behaviour, we investigate empirically the extent to which the existence of the estimated demand asymmetries contributes to asymmetric responses of equilibrium prices of imperfectly competing firms, given upstream negative and positive cost shocks. We do so by simulating positive and negative costs shocks, given the estimated demand model with asymmetric demand responses. We compare those changes in prices to changes in prices resulting from the same magnitude of cost shocks under a counterfactual demand structure without demand asymmetries. Our findings suggest that not allowing for asymmetries in demand implies similar magnitudes of simulated price-cost pass-through rates from positive and negative cost shocks. When we allow for demand asymmetries, however, a positive cost shock is passed through to retail prices to a greater degree than a negative cost shock of the same magnitude. Our findings imply that the shape of the demand curve could explain observed asymmetric price transmission of cost shocks in the context of imperfectly competitive markets.

Keywords: retail grocery sector; pass-through; asymmetric price responses (search for similar items in EconPapers)
JEL-codes: L11 L19 L89 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://hdl.handle.net/10.1093/erae/jbw001 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: An analysis of asymmetric consumer price responses and asymmetric cost pass-through in the French coffee market (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:erevae:v:43:y:2016:i:5:p:781-804.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

European Review of Agricultural Economics is currently edited by Timothy Richards, Salvatore Di Falco, Céline Nauges and Vincenzina Caputo

More articles in European Review of Agricultural Economics from Oxford University Press and the European Agricultural and Applied Economics Publications Foundation Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().