Cost pass-through in the Swedish coffee market

Abstract

Cost pass-through to retail prices shows how changes in marginal costs are allocated between producers and consumers, and it is, therefore, closely related to market structure and competition. This paper uses Swedish data on coffee products at the barcode level to evaluate pass-through from the cost of green coffee beans, the main marginal cost, to the retail price of roasted and ground coffee. First long-run cost pass-through is estimated for each product, and then regression is used to analyse how pass-through varies across market shares, retailer-owned brands and other product characteristics. A general result is that pass-through is roughly complete for products with large market shares, while those with small market shares have low pass-through rates. There is no evidence that retailer-owned brands have higher pass-through than brand-name products with similar market shares, which would be the case if retailer-owned brands avoided double marginalisation through vertical integration. Thus, although there is not perfect competition in the Swedish coffee market, a large part of it appears to be highly competitive.