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Pass-through of subsidies to prices under limited competition: Evidence from Canada’s Nutrition North program

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  • Galloway, Tracey
  • Li, Nicholas

Abstract

We study the pass-through of Canada’s Nutrition North food subsidy in remote, mainly Indigenous communities with limited competition. Reforms to the program in 2016 and 2019 provide exogenous changes in retailer marginal costs and we show that on average, retail prices were lowered by 67 cents for every additional dollar of subsidy, well below the full pass-through expected under perfect competition. We can precisely characterize the competitive environment for each community, which is typically a retail monopoly or duopoly, and find that the low average pass-through is mostly driven by monopoly communities. Our findings show that resources intended for marginalized communities can be partly captured by local firms with market power.

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  • Galloway, Tracey & Li, Nicholas, 2023. "Pass-through of subsidies to prices under limited competition: Evidence from Canada’s Nutrition North program," Journal of Public Economics, Elsevier, vol. 225(C).
    • Handle: RePEc:eee:pubeco:v:225:y:2023:i:c:s0047272723001536
    DOI: 10.1016/j.jpubeco.2023.104971
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    Cited by:

    1. Balaguer, Jacint & Ripollés, Jordi, 2024. "Assessing a fuel subsidy: Dynamic effects on retailer pricing and pass-through to consumers," Energy Economics, Elsevier, vol. 138(C).

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