THE EFFECT OF TOURISM OVERNIGHT STAYS ON CROATIA’S EXTRA VIRGIN OLIVE OIL PRICES AND MARKET POWER: AN EMPIRICAL STUDY

Abstract

The objective of this study was to analyse the impact of positive externalities of international tourism demand on increasing the market power (MP) of an extra virgin olive oil (EVOO) wholesaler in Croatia. In the context of this article, the MP measures how close the wholesaler can set the actual price of EVOO to the maximum the retailer wants to pay. Our hypothesis explained how the additional demand of tourist consumers for EVOO could stimulate and increase the MP of the wholesalers. Here, it was important to remember that the EVOO market signals relatively asymmetric quality information about products that varies in certain ranges. The selected time-series span the weekly period from 2017 to 2019. We used the Toda-Yamamoto approaches of causality in the relationship between the EVOO price gap and tourism overnights, as well as the autoregressive distributed lag model (ARDL) bounds test for cointegration. For larger EVOO bottles (0,75 and 1 l), there is unidirectional causality flowing from tourism consumption, which we presume originates from the tourism demand variable, to MP. There is a relevant bidirectional causality in the case of the 0,25 l bottle. Tourism in a purchased bottle of 0,5 l does not manifest any side-effect impact on MP. This pioneering study has investigated the relationship between the MP of EVOO wholesalers in Croatia and tourist demand. An inventive view has been adopted with regard to the theoretical concept of measuring MP, but also due to the steps towards the use of ARDL bound testing.

Keywords

• extra virgin olive oil
• market power
• tourism
• ardl model
• toda-yamamoto causality