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

Author

Listed:
  • Nicholas Li

    (Department of Economics, Toronto Metropolitan University, Toronto, Canada)

  • Tracey Galloway

    (Department of Anthropoly, University of Toronto, Mississauga, Canada)

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.

Suggested Citation

  • Nicholas Li & Tracey Galloway, 2023. "Pass-through of subsidies to prices under limited competition: Evidence from Canada’s Nutrition North program," Working Papers 085, Toronto Metropolitan University, Department of Economics.
    • Handle: RePEc:rye:wpaper:wp085
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    File URL: https://www.arts.ryerson.ca/economics/repec/pdfs/wp085.pdf
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    References listed on IDEAS

    as
    1. Li, Nicholas, 2023. "In-kind transfers, marketization costs and household specialization: Evidence from Indian farmers," Journal of Development Economics, Elsevier, vol. 164(C).
    2. Manuela Angelucci & Giacomo De Giorgi, 2009. "Indirect Effects of an Aid Program: How Do Cash Transfers Affect Ineligibles' Consumption?," American Economic Review, American Economic Association, vol. 99(1), pages 486-508, March.
    3. Naylor, Jamie & Deaton, B. James & Ker, Alan, 2020. "Assessing the effect of food retail subsidies on the price of food in remote Indigenous communities in Canada," Food Policy, Elsevier, vol. 93(C).
    4. Christos Genakos & Mario Pagliero, 2022. "Competition and Pass-Through: Evidence from Isolated Markets," American Economic Journal: Applied Economics, American Economic Association, vol. 14(4), pages 35-57, October.
    5. Gee Hee Hong & Nicholas Li, 2017. "Market Structure and Cost Pass-Through in Retail," The Review of Economics and Statistics, MIT Press, vol. 99(1), pages 151-166, March.
    6. Raymundo M. Campos-Vázquez & Eduardo M. Medina-Cortina, 2019. "Pass-through and competition: the impact of soft drink taxes as seen through Mexican supermarkets," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 28(1), pages 1-23, December.
    7. Nathan H. Miller & Matthew Osborne & Gloria Sheu, 2017. "Pass-through in a concentrated industry: empirical evidence and regulatory implications," RAND Journal of Economics, RAND Corporation, vol. 48(1), pages 69-93, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    pass-through; Subsidies; retail; Competition; monopoly; prices; Canada; Nutrition; North;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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