Do coffee roasters benefit from high prices of green coffee?

The German coffee industry has repeatedly made the puzzling statement that it would prefer higher prices of green coffee, its main input. Likewise, it supported the maintenance of the coffee tax. In this paper, an oligopoly m odel with differentiated products is used to illustrate the possibility of profit-raising cost-increases. The relationship between prices and costs of roasted coffee in Germany is estimated, and the hypothesis of overshifting is tested. In addition, the demand for coffee is studied. However, the emp irical analysis does not confirm that increasing costs lead to higher profi ts. Alternative explanations for the coffee industry's statements, based on long term considerations, are also discussed. (C) 2002 Elsevier Science B. V. All rights reserved.