Retailers and Consumers: The pass-through of import price changes
This paper uses German household data on apparel purchases to show that, conditional on income, households differ with respect to their shopping outlets and the prices they pay. We estimate that high-price retailers are not affected by changes in import prices. By contrast, the pass-through for low-price retailers is 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 explanation for these observations in a theoretical model with vertical product differentiation due to bundling an otherwise homogeneous imported good with services. Following an import price shock, retailers who sell cheaper unbundled products change prices more than retailers who sell a higher-priced bundle of product and service.
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