Competition in the Swedish coffee market, 1978-2002

Are multinationals exploiting their market power in national coffee markets by keeping consumer prices too high and thereby limiting demand for imports of coffee beans? The purpose of this study is to address this issue by testing if there is market power in the Swedish market for roasted coffee. The market structure is typical of many consumer markets for coffee, with four very large roasting companies, two of which are multinationals, plus many small ones. To analyze the degree of market power, an oligopoly model is estimated using market time series data. The econometric approach is to first test for long-run relationships between the variables with cointegration analysis and then to estimate a system of equations for demand and pricing behavior. Our key finding is that there is evidence of some market power in the short run but none in the long run.