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The Economics Of Pass-Through With Production Constraints

Author

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  • Dov Rothman
  • Philipp Tillmann
  • David Toniatti

Abstract

This article reviews the implications of production constraints for pass-through. We consider production technology that can only be adjusted in discrete intervals and/or is costly to adjust. We show that, because of production constraints, a firm may not be willing to adjust its level of production in response to small changes in cost. Because price is determined by demand and the quantity produced, production constraints may result in a firm not changing price in response to a change in cost. This result has important implications for antitrust litigation—for example, the extent to which overcharges resulting from anticompetitive conduct upstream in the supply chain are passed through to purchasers downstream in the supply chain.

Suggested Citation

  • Dov Rothman & Philipp Tillmann & David Toniatti, 2016. "The Economics Of Pass-Through With Production Constraints," Journal of Competition Law and Economics, Oxford University Press, vol. 12(2), pages 279-285.
    • Handle: RePEc:oup:jcomle:v:12:y:2016:i:2:p:279-285.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhw004
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    More about this item

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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