Pass-through of subsidies to prices under limited competition: Evidence from Canada’s Nutrition North program
Abstract
We study the pass-through of Canada’s Nutrition North food subsidy in remote, mainly Indigenous communities with limited competition. Reforms to the program in 2016 and 2019 provide exogenous changes in retailer marginal costs and we show that on average, retail prices were lowered by 67 cents for every additional dollar of subsidy, well below the full pass-through expected under perfect competition. We can precisely characterize the competitive environment for each community, which is typically a retail monopoly or duopoly, and find that the low average pass-through is mostly driven by monopoly communities. Our findings show that resources intended for marginalized communities can be partly captured by local firms with market power.