A tractable cost pass-through benchmark

Under the assumptions of constant marginal costs, linear demand and symmetric cross-price effects, the equilibrium rates at which firms pass cost changes through to prices can be calculated from diversion ratios. The resulting pass-through benchmark makes it possible to capture market asymmetries and can easily be extended to cover not just the conventional cases of firm-specific and industrywide cost changes but also cases where some but not all firms face a cost change and where the degree of exposure to the cost change varies between firms. As such the benchmark is more accurate and adaptable than existing benchmarks and also has a number of practical advantages vis-Ã -vis more complex approaches.