IDEAS home Printed from https://ideas.repec.org/p/zbw/cbscwp/279798.html
   My bibliography  Save this paper

Imperfect price information, market power, and tax pass-through

Author

Listed:
  • Montag, Felix
  • Mamrak, Robin
  • Sagimuldina, Alina
  • Schnitzer, Monika

Abstract

Pass-through determines how consumers respond to taxes. We investigate the impact of imperfect price information on pass-through of commodity taxes. Our theoretical model predicts that the pass-through rate increases with the share of well-informed consumers. Pass-through is higher for the minimum price, paid by well-informed consumers, than for the average price, paid by uninformed consumers. Moreover, passthrough to the average price is non-monotonic with respect to the number of sellers. An empirical analysis of multiple recent tax changes in the German and French retail fuel markets confirms our theoretical predictions. Our results have implications for tax policy and shed light on the relative effectiveness of Pigouvian taxes versus regulation.

Suggested Citation

  • Montag, Felix & Mamrak, Robin & Sagimuldina, Alina & Schnitzer, Monika, 2023. "Imperfect price information, market power, and tax pass-through," Working Papers 337, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    • Handle: RePEc:zbw:cbscwp:279798
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/279798/1/186997039X.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Emi Nakamura & Dawit Zerom, 2010. "Accounting for Incomplete Pass-Through," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(3), pages 1192-1230.
    2. Stephan Huber & Christoph Rust, 2016. "Calculate travel time and distance with OpenStreetMap data using the Open Source Routing Machine (OSRM)," Stata Journal, StataCorp LP, vol. 16(2), pages 416-423, June.
    3. Matthew S. Lewis, 2011. "Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 409-449, June.
    4. Jo Thori Lind & Halvor Mehlum, 2010. "With or Without U? The Appropriate Test for a U‐Shaped Relationship," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(1), pages 109-118, February.
    5. Thiess Buettner & Boryana Madzharova, 2021. "Unit Sales and Price Effects of Preannounced Consumption Tax Reforms: Micro-level Evidence from European VAT," American Economic Journal: Economic Policy, American Economic Association, vol. 13(3), pages 103-134, August.
    6. Youssef Benzarti & Dorian Carloni & Jarkko Harju & Tuomas Kosonen, 2020. "What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes," Journal of Political Economy, University of Chicago Press, vol. 128(12), pages 4438-4474.
    7. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    8. Ambarish Chandra & Mariano Tappata, 2011. "Consumer search and dynamic price dispersion: an application to gasoline markets," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 681-704, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Felix Montag & Alina Sagimuldina & Monika Schnitzer, 2021. "Does Tax Policy Work When Consumers Have Imperfect Price Information? Theory and Evidence," CESifo Working Paper Series 9138, CESifo.
    2. Noel, Michael D. & Qiang, Hongjie, 2019. "The role of information in retail gasoline price dispersion," Energy Economics, Elsevier, vol. 80(C), pages 173-187.
    3. Felix Montag & Robin Mamrak & Alina Sagimuldina & Monika Schnitzer, 2023. "Imperfect Price Information, Market Power, and Tax Pass-Through," Rationality and Competition Discussion Paper Series 414, CRC TRR 190 Rationality and Competition.
    4. Christos Genakos & Blair Yuan Lyu & Mario Pagliero, 2024. "Asymmetric pass-through and competition," CEP Discussion Papers dp2028, Centre for Economic Performance, LSE.
    5. Maarten Janssen & Paul Pichler & Simon Weidenholzer, 2009. "Sequential Search with Incompletely Informed Consumers: Theory and Evidence from Retail Gasoline Markets," Vienna Economics Papers 0914, University of Vienna, Department of Economics.
    6. Winfried Koeniger & Peter Kress, 2024. "The Effect of Unconventional Fiscal Policy on Consumption -New Evidence based on Transactional Data," Swiss Finance Institute Research Paper Series 24-58, Swiss Finance Institute.
    7. Xu, Jiayi & Zhang, Xiao-Bing & Liu, Yang, 2024. "Asymmetric search behavior for gasoline prices: Evidence from the Chinese gasoline market," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 699-712.
    8. Michael D. Noel & Hongjie Qiang, 2023. "Missing Price Information and Its Impact on Equilibrium Price Dispersion: Evidence From Gasoline Signboards," Journal of Industrial Economics, Wiley Blackwell, vol. 71(3), pages 814-854, September.
    9. David P. Byrne & Nicolas de Roos, 2017. "Consumer Search in Retail Gasoline Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 65(1), pages 183-193, March.
    10. Ralph-C Bayer & Changxia Ke, 2010. "Rockets and Feathers in the Laboratory," School of Economics and Public Policy Working Papers 2010-20, University of Adelaide, School of Economics and Public Policy.
    11. Garrod, Luke & Li, Ruochen & Russo, Antonio & Wilson, Chris M, 2024. "Understanding Cost Pass-Through when Prices are Dispersed," MPRA Paper 123285, University Library of Munich, Germany.
    12. David P. Byrne, Gordon W. Leslie, and Roger Ware, 2015. "How do Consumers Respond to Gasoline Price Cycles?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    13. Cabral, Luís & Fishman, Arthur, 2012. "Business as usual: A consumer search theory of sticky prices and asymmetric price adjustment," International Journal of Industrial Organization, Elsevier, vol. 30(4), pages 371-376.
    14. George Deltas & Michael Polemis, 2024. "Price Pass-Through Dependence on the Source of Cost Increases: Evidence from the European Gasoline Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(2), pages 595-626, September.
    15. Malloy Brandon, 2018. "The Supply Network and Price Dispersion in the Canadian Gasoline Market," Review of Network Economics, De Gruyter, vol. 17(2), pages 75-107, June.
    16. Erik Eyster & Kristóf Madarász & Pascal Michaillat, 2021. "Pricing Under Fairness Concerns," Journal of the European Economic Association, European Economic Association, vol. 19(3), pages 1853-1898.
    17. Asatryan, Zareh & Gomtsyan, David, 2020. "The incidence of VAT evasion," ZEW Discussion Papers 20-027, ZEW - Leibniz Centre for European Economic Research.
    18. Richards, Timothy J. & Allender, William J. & Hamilton, Stephen F., 2012. "Commodity price inflation, retail pass-through and market power," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 50-57.
    19. Cabral, Luis & Schober, Dominik & Woll, Oliver, 2018. "Search and Equilibrium Prices: Theory and Evidence from Retail Diesel," CEPR Discussion Papers 12813, C.E.P.R. Discussion Papers.
    20. Remer, Marc, 2015. "An empirical investigation of the determinants of asymmetric pricing," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 46-56.

    More about this item

    Keywords

    pass-through; taxes; imperfect information; competition;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:cbscwp:279798. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/gsuchus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.