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Does competition increase pass-through?

Published version
Peer-reviewed

Repository DOI


Change log

Authors

Ritz, R 

Abstract

In recent years, the literature has seen a surge of interest in pass-through as an economic tool. At the same time, widespread concerns have emerged about the rising market power of firms. How does competition affect pass-through? A standard intuition is that more competition makes prices more cost-reflective and hence raises the rate of cost pass- through. This paper shows this conclusion is sensitive to the routine assumption that firms’ marginal costs are constant. With modestly convex costs, market power can raise pass-through (even when it lies below 1). These results have implications for antitrust policy, environmental regulation, and welfare analysis.

Description

Publication status: Published

Keywords

38 Economics, 3801 Applied Economics

Journal Title

RAND Journal of Economics

Conference Name

Journal ISSN

0741-6261
1756-2171

Volume Title

Publisher

Wiley