Retailers and Consumers: The Pass‐Through of Import Price Changes

31 Pages Posted: 12 Jul 2017

See all articles by Eike Berner

Eike Berner

Deutsche Bundesbank

Laura Birg

University of Goettingen (Göttingen)

Dominik Boddin

Deutsche Bundesbank - Deutsche Bundesbank Research Data and Service Centre

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Date Written: July 2017

Abstract

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 2000–07. We find that high‐price retailers do not pass through changes in the import price. Pass‐through rates for low‐price retailers are 53 per cent within three months. Consequently, pass‐through rates for low‐income households are 58 per cent, 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 goods 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.

Suggested Citation

Berner, Eike and Birg, Laura and Boddin, Dominik, Retailers and Consumers: The Pass‐Through of Import Price Changes (July 2017). The World Economy, Vol. 40, Issue 7, pp. 1314-1344, 2017, Available at SSRN: https://ssrn.com/abstract=3000643 or http://dx.doi.org/10.1111/twec.12432

Eike Berner (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany

Laura Birg

University of Goettingen (Göttingen) ( email )

Platz der Goettinger Sieben 3
Goettingen, D-37073
Germany
+49 551 39 19686 (Phone)

Dominik Boddin

Deutsche Bundesbank - Deutsche Bundesbank Research Data and Service Centre ( email )

Wilhelm-Epstein-Straße 14
Frankfurt am Main, 60431
Germany

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