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Hong and Li meet Weyl and Fabinger: Modeling vertical structure by the conduct parameter approach

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  • Adachi, Takanori

Abstract

By using Weyl and Fabinger’s (2013) conduct parameter approach, this note extends Hong and Li’s (2017) model of vertical structure to include downstream and upstream competition, and thereby generalizes the formula for cost pass-through elasticity. Three channels are identified through which downstream and upstream competition affect the cost pass-through elasticity, and it is argued that competition generally has an ambiguous effect.

Suggested Citation

  • Adachi, Takanori, 2020. "Hong and Li meet Weyl and Fabinger: Modeling vertical structure by the conduct parameter approach," Economics Letters, Elsevier, vol. 186(C).
    • Handle: RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519303684
    DOI: 10.1016/j.econlet.2019.108732
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    References listed on IDEAS

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    1. Robert A. Ritz, 2018. "Oligopolistic competition and welfare," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume I, chapter 7, pages 181-200, Edward Elgar Publishing.
    2. 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.
    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. Robert A Ritz, 2024. "Does competition increase pass‐through?," RAND Journal of Economics, RAND Corporation, vol. 55(1), pages 140-165, March.
    5. Kimball, Miles S, 1995. "The Quantitative Analytics of the Basic Neomonetarist Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1241-1277, November.
    6. Gee Hee Hong & Nicholas Li, 2017. "Market Structure and Cost Pass-Through in Retail," The Review of Economics and Statistics, MIT Press, vol. 99(1), pages 151-166, March.
    7. 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.
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    Cited by:

    1. Ellalee, Haider & Alali, Walid Y., 2022. "A Welfare and Pass-Through Effects of Regulations within Imperfect Competition," MPRA Paper 116512, University Library of Munich, Germany.
    2. Takanori Adachi & Leer Bao, 2022. "Chicago price theory meets imperfect competition: A common ownership approach," Economics Bulletin, AccessEcon, vol. 42(4), pages 1848-1857.
    3. Adachi, Takanori & Fabinger, Michal, 2022. "Pass-through, welfare, and incidence under imperfect competition," Journal of Public Economics, Elsevier, vol. 211(C).
    4. Aditya Bhattacharjea & Srishti Gupta, 2024. "Alternative forms of buyer power in a vertical duopoly: implications for profits, welfare, and cost pass-through," Journal of Economics, Springer, vol. 142(2), pages 163-198, July.
    5. Adachi, Takanori & Tremblay, Mark J., 2020. "Business-to-business bargaining in two-sided markets," European Economic Review, Elsevier, vol. 130(C).
    6. Takanori ADACHI & Mark J. TREMBLAY, 2022. "Do No-Surcharge Rules Increase Effective Retail Prices?," Discussion papers e-22-003, Graduate School of Economics , Kyoto University.

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    More about this item

    Keywords

    Vertical relationships; Conduct parameter; Cost pass-through;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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