Price Transmission in the Cocoa-Chocolate Chain

Abstract : There is a common perception among consumers that the retail prices respond faster to an increase in the price of raw material than to a decrease. This paper aims at testing the existence of such asymmetric price transmission in the cocoa-chocolate chain on the French market. Two types of asymmetry are suspected: asymmetry in the transmission of positive and negative shocks that may reflect non-competitive behaviour in the chocolate industry and asymmetry in the transmission of small and large shocks that may be due do adjustment costs. These hypotheses are tested using the two-step approach to cointegration of Engle and Granger extended to encompass possible asymmetric adjustment to disequilibrium. Estimates indicate that a three-regime error correction model is the most appropriate. On the one hand, the chocolate price does not adjust to small shocks in the cocoa market. On the other hand, the speed of adjustment is larger for negative deviations than for positive ones.
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Catherine Araujo Bonjean, Jean-François Brun. Price Transmission in the Cocoa-Chocolate Chain. 2011. ⟨halshs-00552997⟩

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