IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v122y2014i2p170-175.html
   My bibliography  Save this article

Double marginalization and cost pass-through: Weyl–Fabinger and Cowan meet Spengler and Bresnahan–Reiss

Author

Listed:
  • Adachi, Takanori
  • Ebina, Takeshi

Abstract

Consider the classical double marginalization problem of single-product successive monopolies. We show that the ratio of the cost pass-through at the final sale relative to that at the wholesale level is characterized by the curvature of inverse demand in the final market. We also apply Cowan’s (2012) method, which utilizes the idea of pass-through in an analysis of third-degree price discrimination, to compare consumer surplus under vertical integration and separation.

Suggested Citation

  • Adachi, Takanori & Ebina, Takeshi, 2014. "Double marginalization and cost pass-through: Weyl–Fabinger and Cowan meet Spengler and Bresnahan–Reiss," Economics Letters, Elsevier, vol. 122(2), pages 170-175.
  • Handle: RePEc:eee:ecolet:v:122:y:2014:i:2:p:170-175
    DOI: 10.1016/j.econlet.2013.11.020
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176513005144
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Randy Brenkers & Frank Verboven, 2006. "Liberalizing A Distribution System: The European Car Market," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 216-251, March.
    2. Celine Bonnet & Pierre Dubois & Sofia B. Villas Boas & Daniel Klapper, 2013. "Empirical Evidence on the Role of Nonlinear Wholesale Pricing and Vertical Restraints on Cost Pass-Through," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 500-515, May.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    4. Auer, Raphael A. & Schoenle, Raphael S., 2016. "Market structure and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 98(C), pages 60-77.
    5. Emi Nakamura & Dawit Zerom, 2010. "Accounting for Incomplete Pass-Through," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1192-1230.
    6. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 625-652.
    7. Patrick Rey & Thibaud Vergé, 2010. "Resale Price Maintenance And Interlocking Relationships," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 928-961, December.
    8. Gita Gopinath & Pierre-Olivier Gourinchas & Chang-Tai Hsieh & Nicholas Li, 2011. "International Prices, Costs, and Markup Differences," American Economic Review, American Economic Association, vol. 101(6), pages 2450-2486, October.
    9. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-875, September.
    10. Simon Cowan, 2007. "The welfare effects of third-degree price discrimination with nonlinear demand functions," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 419-428, June.
    11. Gee Hee Hong & Nicholas Li, 2013. "Market Structure and Cost Pass-Through in Retail," Staff Working Papers 13-5, Bank of Canada.
    12. Emi Nakamura, 2008. "Pass-Through in Retail and Wholesale," American Economic Review, American Economic Association, vol. 98(2), pages 430-437, May.
    13. Hellerstein, Rebecca, 2008. "Who bears the cost of a change in the exchange rate? Pass-through accounting for the case of beer," Journal of International Economics, Elsevier, vol. 76(1), pages 14-32, September.
    14. Hellerstein, Rebecca & Villas-Boas, Sofia B., 2010. "Outsourcing and pass-through," Journal of International Economics, Elsevier, vol. 81(2), pages 170-183, July.
    15. Lantz, Björn, 2009. "The double marginalization problem of transfer pricing: Theory and experiment," European Journal of Operational Research, Elsevier, vol. 196(2), pages 434-439, July.
    16. Nicholas Li & Gee Hee Hong, 2013. "Market Structure and Cost Pass-Through in Retail," Working Papers tecipa-470, University of Toronto, Department of Economics.
    17. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347-347.
    18. Pinelopi Koujianou Goldberg & Rebecca Hellerstein, 2013. "A Structural Approach to Identifying the Sources of Local Currency Price Stability," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 175-210.
    19. Céline Bonnet & Pierre Dubois, 2010. "Inference on vertical contracts between manufacturers and retailers allowing for nonlinear pricing and resale price maintenance," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 139-164.
    20. Michael A. Cohen, 2013. "A Study of Vertical Integration and Vertical Divestiture: The Case of Store Brand Milk Sourcing in Boston," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(1), pages 101-124, March.
    21. Rey, Patrick & Salant, David, 2012. "Abuse of dominance and licensing of intellectual property," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 518-527.
    22. Morten Overgaard Ravn & Stephanie Schmitt-Grohe & Martin Uribe, 2010. "Incomplete Cost Pass-Through Under Deep Habits," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 317-332, April.
    23. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    24. Villas-Boas, Sofia & Hellerstein, Rebecca, 2006. "Identification of supply models of retailer and manufacturer oligopoly pricing," Economics Letters, Elsevier, vol. 90(1), pages 132-140, January.
    25. Simon Cowan, 2012. "Third-Degree Price Discrimination and Consumer Surplus," Journal of Industrial Economics, Wiley Blackwell, vol. 60(2), pages 333-345, June.
    26. Ricard Gil, 2009. "Revenue Sharing Distortions and Vertical Integration in the Movie Industry," Journal of Law, Economics, and Organization, Oxford University Press, vol. 25(2), pages 579-610, October.
    27. Abito, Jose Miguel & Wright, Julian, 2008. "Exclusive dealing with imperfect downstream competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 227-246, January.
    28. Sridhar Moorthy, 2005. "A General Theory of Pass-Through in Channels with Category Management and Retail Competition," Marketing Science, INFORMS, vol. 24(1), pages 110-122, August.
    29. Timothy F. Bresnahan & Peter C. Reiss, 1985. "Dealer and Manufacturer Margins," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 253-268, Summer.
    30. Hellerstein, Rebecca & Villas-Boas, Sofia B., 2010. "Outsourcing and pass-through," Journal of International Economics, Elsevier, vol. 81(2), pages 170-183, July.
    31. repec:hrv:faseco:30703875 is not listed on IDEAS
    32. Oz Shy & Zhu Wang, 2011. "Why Do Payment Card Networks Charge Proportional Fees?," American Economic Review, American Economic Association, vol. 101(4), pages 1575-1590, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gaudin, Germain, 2016. "Pass-through, vertical contracts, and bargains," Economics Letters, Elsevier, vol. 139(C), pages 1-4.
    2. Durevall, Dick, 2017. "Cost Pass-Through in the Swedish Coffee Market," Working Papers in Economics 697, University of Gothenburg, Department of Economics.
    3. Adachi, Takanori & Ebina, Takeshi, 2014. "Cost pass-through and inverse demand curvature in vertical relationships with upstream and downstream competition," Economics Letters, Elsevier, vol. 124(3), pages 465-468.
    4. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    5. Takanori Adachi & Muhammad Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    6. Yongmin Chen & Marius Schwartz, 2015. "Differential pricing when costs differ: a welfare analysis," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 442-460, June.
    7. repec:kap:jincot:v:17:y:2017:i:4:d:10.1007_s10842-017-0244-5 is not listed on IDEAS
    8. Durevall, Dick, 2017. "Cost Pass-Through in the Swedish Coffee Market," HUI Working Papers 120, HUI Research.

    More about this item

    Keywords

    Double marginalization; Cost pass-through; Inverse demand curvature; Consumer surplus;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:122:y:2014:i:2:p:170-175. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.