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Commodity Price Pass-Through in Differentiated Retail Food Markets


  • Richards, Timothy J.
  • Allender, William J.
  • Pofahl, Geoffrey M.


Prices for nearly all basic commodity rose at unprecedented rates throughout early 2008, only to fall nearly as fast as financial markets and global economies began to collapse. Rising food prices in 2008 led to concerns that commodity price spikes would lead to more general food inflation, but by early 2009 interest focused more on the seeming inability of food prices to fall back down with commodity prices. This study provides an empirical investigation into the pass-through of commodity prices to retail prices for two different types of food products: potatoes and fluid milk. The results show that pass-through depends on the nature of the food in question, but is generally consistent with theoretical models of pricing by sellers of multiple, differentiated products. In particular, pass-through rates tend to be lower for processed (differentiated) products during periods of falling input prices than when input prices are rising. For less processed products, pass-through tends to be higher during regimes of both rising and falling input prices. Our results show that pass-through depends on the degree of pricing power possessed by all channel members and, more generally, suggest a nuanced approach to understanding retail food price inflation.

Suggested Citation

  • Richards, Timothy J. & Allender, William J. & Pofahl, Geoffrey M., 2010. "Commodity Price Pass-Through in Differentiated Retail Food Markets," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61187, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea10:61187

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    References listed on IDEAS

    1. 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.
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    Cited by:

    1. Hovhannisyan, Vardges & Stiegert, Kyle W., 2011. "Vertical Channel Analysis of the U.S. Milk Market," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103631, Agricultural and Applied Economics Association.

    More about this item


    commodity prices; conduct; industrial organization; inflation; market power; nested logit; pass-through; random parameters model; Consumer/Household Economics; Demand and Price Analysis; Industrial Organization; C35; D12; D43; L13; L41; Q13;

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness


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