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Impact of cost shocks on consumer prices in vertically-related markets: the case of the French soft drink market

Author

Listed:
  • Céline Bonnet

    (GREMAQ - Groupe de recherche en économie mathématique et quantitative - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • Vincent V. Requillart

    (GREMAQ - Groupe de recherche en économie mathématique et quantitative - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

Abstract

We develop a structural econometric model of the vertical contracts between soft drink manufacturers and retailers to assess the impact of taxes or changes in production costs on consumer prices. Using individual data on food purchases from a representative survey of 19,000 French households in 2005, we estimate consumer demand using a random utility approach. Among a set of possible vertical relationships, we select the model that best fits the data. We evaluate the pass-through rate of changes in input costs (sugar) or of taxes and show that the industry over-shifts cost changes or excise taxes to the consumers. This result challenges the belief that firms do not pass on the full extent of cost changes or excise taxes to consumers.

Suggested Citation

  • Céline Bonnet & Vincent V. Requillart, 2013. "Impact of cost shocks on consumer prices in vertically-related markets: the case of the French soft drink market," Post-Print hal-02646844, HAL.
    • Handle: RePEc:hal:journl:hal-02646844
    DOI: 10.1093/ajae/aat055
    as

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