Mark ups and pass-through in small and medium retailers for rice, tomato sauce and oil

In this paper, we recover and decompose markups, and estimate the pass-through rates from cost to prices in small and medium retail stores for oil, tomato sauce, and rice in Uruguay using a structural model of demand and assumptions about the competitive behavior of producers. The market power for these products has been under the Commission of Promotion and Defence of Competence study since 2016, and the proposed methodology allows for deepening in the measure and the understanding of the origin of that market power. In addition to providing a fundamental input for competition defense policies in Uruguay, this study enhances the international academic literature by contributing evidence on cost-to-price pass-through in a developing economy with potentially greater market power than that found in developed countries. The markups for oil and tomato sauce are around 25% for Nash Bertrand competition assumption, and 50% for the collusion assumption, while for rice are 36% and 75% respectively. For its part, about 65% of the market power under Nash Bertrand assumption is explained by the ability of firms to differentiate products and 35% for the ownership structure in the case of oil and sauce. In the case of rice, 49% are explained for differentiation and 51% for ownership structure. Finally, the pass-through rates are low for the three products, being under both behavioral assumptions lower than 55% for the three products.