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Retailers and Consumers: The pass-through of import price changes

  • Berner, Eike
  • Birg, Laura

In this paper, we estimate pass-through rates of import price changes to retail prices across retailers and consumers for apparel purchases in Germany for the period of 2000 to 2007. We find that high-price retailers do not pass through changes in the import price. Pass-through rates for low-price retailers are 53% within 3 months. Consequently, pass-through rates for low-income households are 58%, significantly larger than those for high-income households. We then present one possible explanation for these observations in a theoretical model with endogenous vertical product differentiation due to bundling an ex-ante homogeneous import good with services. Following an import price change, retailers who sell a cheaper unbundled product change prices to a greater extent than retailers who sell a higher-priced bundle of product and service.

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Paper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 133.

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Date of creation: 2012
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Handle: RePEc:zbw:cegedp:133
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Web page: http://www.cege.wiso.uni-goettingen.de/

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  1. Horst Raff & Joachim Wagner, 2009. "Intra-Industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry," CESifo Working Paper Series 2851, CESifo Group Munich.
  2. George Alessandria, 2004. "International Deviations From The Law Of One Price: The Role Of Search Frictions And Market Share," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1263-1291, November.
  3. Nakamura, Emi & Zerom, Dawit, 2008. "Accounting for Incomplete Pass-Through," MPRA Paper 14389, University Library of Munich, Germany.
  4. Raff, Horst & Schmitt, Nicolas, 2011. "Imports and the structure of retail markets," Economics Working Papers 2011,05, Christian-Albrechts-University of Kiel, Department of Economics.
  5. Raphael Auer & Thomas Chaney, 2009. "Exchange rate pass-through in a competitive model of pricing-to-market," Globalization and Monetary Policy Institute Working Paper 23, Federal Reserve Bank of Dallas.
  6. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  7. Joseph Francois & Julia Woerz, 2008. "Nonlinear Panel Estimation Of Time-Varying Effects Of Import Quotas," IIDE Discussion Papers 20080501, Institue for International and Development Economics.
  8. Gita Gopinath & Oleg Itskhoki, 2010. "Frequency of Price Adjustment and Pass-Through," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 675-727.
  9. Ariel T. Burstein & Joao C. Neves & Sergio Rebelo, 2000. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based Stabilizations," RCER Working Papers 473, University of Rochester - Center for Economic Research (RCER).
  10. Jose Manuel Campa & Linda S. Goldberg, 2008. "Pass-Through of Exchange Rates to Consumption Prices: What Has Changed and Why?," NBER Chapters, in: International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy (NBER-EASE Volume 17), pages 139-176 National Bureau of Economic Research, Inc.
  11. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
  12. de Vos, Klaas & Zaidi, M Asghar, 1997. "Equivalence Scale Sensitivity of Poverty Statistics for the Member States of the European Community," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(3), pages 319-33, September.
  13. Nils Braakmann & Joachim Wagner, 2009. "Labor market adjustments after a large import shock: Evidence from the German clothing industry and the Multi-Fibre Arrangement," Working Paper Series in Economics 155, University of Lüneburg, Institute of Economics.
  14. Nicolas Berman & Philippe Martin & Thierry Mayer, 2009. "How do Different Exporters React to Exchange Rate Changes? Theory, Empirics and Aggregate Implications," Working Papers 2009-32, CEPII research center.
  15. repec:spo:wpecon:info:hdl:2441/10221 is not listed on IDEAS
  16. 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.
  17. Stefania Garetto, 2014. "Firms’ Heterogeneity and Incomplete Pass-Through," Boston University - Department of Economics - Working Papers Series WP2014-006, Boston University - Department of Economics.
  18. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
  19. Linda S. Goldberg & José Manuel Campa, 2010. "The Sensitivity of the CPI to Exchange Rates: Distribution Margins, Imported Inputs, and Trade Exposure," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 392-407, May.
  20. Emi Nakamura & Dawit Zerom, 2010. "Accounting for Incomplete Pass-Through," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1192-1230.
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