MARKET POWER IN THE DUTCH COFFEE MARKET, 1990-1996

Abstract

The significance of coffee to the world economy cannot be understated. In the past years, prices of coffee beans have experienced large fluctuations, whereas consumer prices for roasted coffee hardly responded, that is, were perceived to remain high, or decline too slowly. This issue has drawn concerns about market power in coffee markets. The present study investigates the market power in the Dutch coffee market. I analyze the degree of market power using an oligopoly model and a time-series aggregate data with monthly information about the Dutch coffee market over the period 1990 to 1996. The econometric approach uses a direct measure of marginal cost and estimated demand elasticity to obtain information about oligopoly behavior in the Dutch coffee market. I find that there are about ten firms in the market. The results indicate a fairly low elasticity in price for roasted coffee demand and the importance of controlling for seasonality.