IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Tax incidence with strategic firms in the soft drink market

  • Bonnet, Céline
  • Réquillart, Vincent

Because soft drink (SD) consumption is considered to be a contributor to the ‘epidemic’ of obesity, there is a growing interest in evaluating the impact on SD consumption of alternative tax policies. In this paper, we propose a methodology to evaluate the impact of taxation of a food market taking into account the strategic price response of both manufacturers and retailers. We apply this methodology to the French SD market and simulate the impacts of ad valorem and excise taxes. We find that firms behave differently when facing an ad valorem tax or an excise tax. An excise tax is overshifted to consumer prices while an ad valorem tax is undershifted to consumer prices. We find that an excise tax based on the sugar content of SD is the most effective at reducing SD consumption. Our results also indicate that ignoring strategic pricing by firms leads to misestimations of the impact of taxation by between 15% and 40% depending on the products and the tax implemented. In the short-term, that is, ignoring positive long-term health effects, a €9cents/l excise tax has a small negative welfare effect (about €1/person/year).

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 106 (2013)
Issue (Month): C ()
Pages: 77-88

in new window

Handle: RePEc:eee:pubeco:v:106:y:2013:i:c:p:77-88
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Celine, Bonnet & Dubois, Pierre & Villas-Boas, Sofia B., 2009. "Empirical Evidence on the Role of Non Linear Wholesale Pricing and Vertical Restraints on Cost Pass-Through," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt5nq6h34n, Department of Agricultural & Resource Economics, UC Berkeley.
  2. Sofia Delipalla & Michael Keen, 1991. "The Comparison Between Ad Valorem and Specific Taxation under Imperfect Competition," Working Papers 821, Queen's University, Department of Economics.
  3. David Cutler & Edward Glaeser & Jesse Shapiro, 2003. "Why Have Americans Become More Obese?," NBER Working Papers 9446, National Bureau of Economic Research, Inc.
  4. Zhen Miao & John C. Beghin & Helen H. Jensen, 2010. "Taxing Sweets: Sweetener Input Tax or Final Consumption Tax?," Center for Agricultural and Rural Development (CARD) Publications 10-wp510, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  5. Aviv Nevo, 1998. "Measuring Market Power in the Ready-to-Eat Cereal Industry," NBER Working Papers 6387, National Bureau of Economic Research, Inc.
  6. David Revelt & Kenneth Train, 1998. "Mixed Logit With Repeated Choices: Households' Choices Of Appliance Efficiency Level," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 647-657, November.
  7. Cash, Sean B. & Sunding, David L. & Zilberman, David, 2004. "Fat Taxes And Thin Subsidies: Prices, Diet, And Health Outcomes," 2004 Annual meeting, August 1-4, Denver, CO 19961, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  8. Pinelopi Koujianou Goldberg & Rebecca Hellerstein, 2008. "A Framework for Identifying the Sources of Local-Currency Price Stability with an Empirical Application," Working Papers 1161, Princeton University, Department of Economics, Center for Economic Policy Studies..
  9. P. Biscourp & X. Boutin & T. Vergé, 2008. "The Effects of Retail Regulations on Prices Evidence form the Loi Galland," Documents de Travail de la DESE - Working Papers of the DESE g2008-02, Institut National de la Statistique et des Etudes Economiques, DESE.
  10. Schroeter, Christiane & Lusk, Jayson & Tyner, Wallace, 2008. "Determining the impact of food price and income changes on body weight," Journal of Health Economics, Elsevier, vol. 27(1), pages 45-68, January.
  11. Céline Bonnet & Pierre Dubois, 2010. "Inference on vertical contracts between manufacturers and retailers allowing for nonlinear pricing and resale price maintenance," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 139-164.
  12. Barnett, Paul G. & Keeler, Theodore E. & Hu, Teh-wei, 1995. "Oligopoly structure and the incidence of cigarette excise taxes," Journal of Public Economics, Elsevier, vol. 57(3), pages 457-470, July.
  13. Campa, Jose M. & Goldberg, Linda S., 2006. "Pass through of exchange rates to consumption prices: What has changed and why?," IESE Research Papers D/653, IESE Business School.
  14. Simon P. Anderson & Andre de Palma & Brent Kreider, 2000. "Tax Incidence in Differentiated Product Oligopoly," Virginia Economics Online Papers 341, University of Virginia, Department of Economics.
  15. Gasmi, F & Laffont, J J & Vuong, Q, 1992. "Econometric Analysis of Collusive Behavior in a Soft-Drink Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(2), pages 277-311, Summer.
  16. Dallongeville, Jean & Dauchet, Luc & de Mouzon, Olivier & Réquillart, Vincent & Soler, Louis-Georges, 2009. "Increasing Fruits and Vegetables Consumption: A Cost-Efficiency Analysis of Public Policies," IDEI Working Papers 554, Institut d'Économie Industrielle (IDEI), Toulouse.
  17. Sophia Delipalla & Owen O'Donnell, 1999. "Estimating Tax Incidence, Market Power and Market Conduct: The European Cigarette Industry," Studies in Economics 9901, School of Economics, University of Kent.
  18. Gary S. Becker & Kevin M. Murphy, 1986. "A Theory of Rational Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 41, Chicago - Center for Study of Economy and State.
  19. Pinelopi Koujianou Goldberg & Frank Verboven, 1998. "The Evolution of Price Dispersion in the European Car Market," NBER Working Papers 6818, National Bureau of Economic Research, Inc.
  20. Helmuth Cremer & Philippe De Donder & Darío Maldonado & Pierre Pestieau, 2012. "Taxing Sin Goods and Subsidizing Health Care," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(1), pages 101-123, 03.
  21. Jérôme Adda & Francesca Cornaglia, 2006. "Taxes, Cigarette Consumption, and Smoking Intensity," American Economic Review, American Economic Association, vol. 96(4), pages 1013-1028, September.
  22. Timothy J. Besley & Harvey S. Rosen, 1998. "Sales Taxes and Prices: An Empirical Analysis," NBER Working Papers 6667, National Bureau of Economic Research, Inc.
  23. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 625-652.
  24. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  25. Jean-Pierre Dubé, 2005. "Product Differentiation and Mergers in the Carbonated Soft Drink Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(4), pages 879-904, December.
  26. Bonnet, Céline & Réquillart, Vincent, 2010. "Does the EU Sugar Policy Reform Increase Added Sugar Consumption? An Empirical Evidence on the Soft Drink Market," IDEI Working Papers 641, Institut d'Économie Industrielle (IDEI), Toulouse.
  27. Dhar, Tirtha & Chavas, Jean- Paul & Cotterill, Ronald W. & Gould, Brian W., 2005. "An Economic Analysis of Brand-Level Strategic Pricing Between Coca-Cola Company and Pepsi," Working Papers 201538, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
  28. Hanson, Andrew & Sullivan, Ryan, 2009. "The Incidence of Tobacco Taxation: Evidence from Geographic Micro-Level Data," National Tax Journal, National Tax Association, vol. 62(4), pages 677-98, December.
  29. William N. Evans & Matthew C. Farrelly, 1998. "The Compensating Behavior of Smokers: Taxes, Tar, and Nicotine," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 578-595, Autumn.
  30. Patrick Rey & Thibaud Vergé, 2010. "Resale Price Maintenance And Interlocking Relationships," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 928-961, December.
  31. Hellerstein, Rebecca, 2008. "Who bears the cost of a change in the exchange rate? Pass-through accounting for the case of beer," Journal of International Economics, Elsevier, vol. 76(1), pages 14-32, September.
  32. Ted O'Donoghue & Matthew Rabin, 2005. "Optimal Sin Taxes," Levine's Bibliography 784828000000000346, UCLA Department of Economics.
  33. Olivier Allais & Patrice Bertail & Véronique Nichèle, 2010. "The Effects of a Fat Tax on French Households' Purchases: A Nutritional Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(1), pages 228-245.
  34. Janet A. Weiss & Mary Tschirhart, 1994. "Public information campaigns as policy instruments," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 13(1), pages 82-119.
  35. Emi Nakamura & Dawit Zerom, 2010. "Accounting for Incomplete Pass-Through," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1192-1230.
  36. Smith, Travis A. & Biing-Hwan, Lin & Lee, Jonq-Ying, 2010. "Taxing Caloric Sweetened Beverages: Potential Effects on Beverage Consumption, Calorie Intake, and Obesity," Economic Research Report 95465, United States Department of Agriculture, Economic Research Service.
  37. Chouinard Hayley H & Davis David E & LaFrance Jeffrey T & Perloff Jeffrey M, 2007. "Fat Taxes: Big Money for Small Change," Forum for Health Economics & Policy, De Gruyter, vol. 10(2), pages 1-30, June.
  38. Smed, Sinne & Jensen, Jorgen D. & Denver, Sigrid, 2007. "Socio-economic characteristics and the effect of taxation as a health policy instrument," Food Policy, Elsevier, vol. 32(5-6), pages 624-639.
  39. Nakamura, Emi & Zerom, Dawit, 2008. "Accounting for Incomplete Pass-Through," MPRA Paper 14389, University Library of Munich, Germany.
  40. Daniel McFadden & Kenneth Train, 2000. "Mixed MNL models for discrete response," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 447-470.
  41. K. Sudhir, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Marketing Science, INFORMS, vol. 20(3), pages 244-264, October.
  42. Fabrice Etilé, 2009. "Food price policies and the distribution of body mass index: Theory and empirical evidence from France," PSE Working Papers halshs-00586720, HAL.
  43. Fletcher, Jason M. & Frisvold, David E. & Tefft, Nathan, 2010. "The effects of soft drink taxes on child and adolescent consumption and weight outcomes," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 967-974, December.
  44. K. Sudhir & Vrinda Kadiyali & Vithala R. Rao, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Yale School of Management Working Papers ysm229, Yale School of Management.
  45. Frank J. Chaloupka & Kenneth E. Warner, 1999. "The Economics of Smoking," NBER Working Papers 7047, National Bureau of Economic Research, Inc.
  46. Stern, Nicholas, 1987. "The effects of taxation, price control and government contracts in oligopoly and monopolistic competition," Journal of Public Economics, Elsevier, vol. 32(2), pages 133-158, March.
  47. Céline Bonnet & Vincent Réquillart, 2013. "Impact of Cost Shocks on Consumer Prices in Vertically-Related Markets: The Case of The French Soft Drink Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(5), pages 1088-1108.
  48. Douglas Rivers & Quang Vuong, 2002. "Model selection tests for nonlinear dynamic models," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 1-39, June.
  49. Bergès-Sennou Fabian & Bontems Philippe & Réquillart Vincent, 2004. "Economics of Private Labels: A Survey of Literature," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 2(1), pages 1-25, February.
  50. Keeler, Theodore E. & Hu, Teh-wei & Barnett, Paul G. & Manning, Willard G. & Sung, Hai-Yen, 1996. "Do cigarette producers price-discriminate by state? An empirical analysis of local cigarette pricing and taxation," Journal of Health Economics, Elsevier, vol. 15(4), pages 499-512, August.
  51. Tirtha Dhar & Jean-Paul Chavas & Ronald W. Cotterill & Brian W. Gould, 2005. "An Econometric Analysis of Brand-Level Strategic Pricing Between Coca-Cola Company and PepsiCo," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(4), pages 905-931, December.
  52. Bettendorf, L & Verboven, F, 2000. "Incomplete Transmission of Coffee Bean Prices: Evidence from the Netherlands," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 27(1), pages 1-16, March.
  53. Gruber, Jonathan & Koszegi, Botond, 2004. "Tax incidence when individuals are time-inconsistent: the case of cigarette excise taxes," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1959-1987, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:106:y:2013:i:c:p:77-88. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.