Seasonal asymmetries in wholesale–retail cost pass-through

ABSTRACT

This article investigates the extent of seasonal asymmetries in wholesale to retail cost pass-through in the Canadian apple market. We model nonlinearity in cost pass-through in a panel two-regime error correction model. The model employs weekly store-level retail matching wholesale price data for a major US retail chain. Our results reveal distinct seasonal asymmetries in cost pass-through. Retail prices adjust faster during the fall indicating significantly higher pass-through in response to a change in input composition and seasonal expansion of alternative marketing channels. This input composition effect on cost pass-through highlights the general importance of time-variant market conditions and their respective determinants in explaining cost pass-through dynamics in commodity markets.

KEYWORDS:

• Nonlinear cost pass-through
• seasonality
• panel error correction model
• apples
• input composition effect
• Canada

JEL CLASSIFICATION:

• L66
• C33
• Q13

Acknowledgements

We acknowledge the Stanford Institute for Economic Policy Research (SIEPR) and the Giannini Foundation at the University of California Davis for providing access to the scanner data. We thank Jens-Peter Loy for providing assistance.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We define cost pass-through as the process of price transmission from wholesale to retail as the speed of adjustment towards long-term equilibrium.

² Alternative pooled OLS and random effects model specifications and autocorrelation corrected SEs produced qualitatively similar results. We assume stable retailer long-run margins independent of season. Robustness checks allowing for season-dependent margins produced qualitatively similar results. Since we are interested in pass-through estimates, we do not present estimates of short-term adjustments.

Additional information

Funding

We thank the Heinz Wüstenberg-Stiftung for the financial support.