Working Paper: CEPR ID: DP14272
Authors: Dilip Mookherjee; Shahe Emran; Forhad Shilpi; Helal Uddin
Abstract: We extend standard models of price pass-through in an imperfectly competitive supply chain to incorporate rationing of trade credit. Credit rationing reverses predictions concerning effects of raw material import prices on pass-through to wholesale prices, and effects of regulations of intermediaries.To test these we study the effects of a policy in Bangladesh's edible oils supply chain during 2011-12 banning a layer of financing intermediaries. Evidence from a difference-in-difference estimation rejects the standard model. We find that the regulatory effort to reduce market power of financing intermediaries ended up raising consumer prices by restricting access to credit of downstream traders.
Keywords: intermediary; supply chain; market power; credit rationing; passthrough; edible oils; Bangladesh
JEL Codes: O12; L13; Q13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| banning the financing intermediaries (G21) | increased consumer prices (E31) |
| banning the financing intermediaries (G21) | restricted access to credit for downstream traders (G21) |
| banning the financing intermediaries (G21) | fall in passthrough rates (E43) |
| increased consumer prices (E31) | tighter credit constraints faced by traders (F65) |
| decreased passthrough rate (H29) | increased consumer prices (E31) |