June 1, 1998

Competition on the Dutch coffee market

World coffee bean prices have shown large fluctuations during the past years, whereas consumer prices for roasted coffee have varied considerably less.

The paper seeks to explain the weak relationship between coffee bean prices and consumer prices. The authors adopt and estimate an aggregate model of oligopolistic interaction. It is shown that the relatively large share of costs other than bean costs accounts for the most important part of the weak relationship between bean prices and consumer prices. The remaining part follows from markup absorption, but is less important since oligopolistic interdependence is relatively competitive. The estimates are used to make simulations under alternative behavioral assumptions: duopoly and monopoly. The computations show that consumer prices would have been much higher and would have fluctuated even less (due to greater markup absorption) under these alternative regimes.



F. Verboven