Working Paper: NBER ID: w26615
Authors: M. Shahe Emran; Dilip Mookherjee; Forhad Shilpi; M. 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: credit rationing; price passthrough; supply chains; Bangladesh; policy reform
JEL Codes: L13; O12; Q13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| banning of delivery order traders (DOTs) (L87) | decrease in passthrough rates from crude palm oil prices to wholesale prices (Q31) |
| decrease in passthrough rates from crude palm oil prices to wholesale prices (Q31) | increase in consumer prices of palm oil (Q31) |
| banning of delivery order traders (DOTs) (L87) | increase in consumer prices of palm oil (Q31) |
| banning of delivery order traders (DOTs) (L87) | increase in financing costs for traders (G19) |