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Bias in Reduced-Form Estimates of Pass-through

Author

Listed:
  • Alexander MacKay

    (University of Chicago, Department of Economics)

  • Nathan H. Miller

    (Georgetown University, McDonough School of Business)

  • Marc Remer

    (Economic Analysis Group, U.S. Department of Justice)

  • Gloria Sheu

    (Economic Analysis Group, U.S. Department of Justice)

Abstract

We show that, in general, consistent estimates of cost pass-through are not obtained from reduced-form regressions of price on cost. We derive a formal approximation for the bias that arises even under standard orthogonality conditions. We provide guidance on the conditions under which bias may frustrate inference.

Suggested Citation

  • Alexander MacKay & Nathan H. Miller & Marc Remer & Gloria Sheu, 2014. "Bias in Reduced-Form Estimates of Pass-through," EAG Discussions Papers 201401, Department of Justice, Antitrust Division.
    • Handle: RePEc:doj:eagpap:201401
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    Cited by:

    1. Nathan H. Miller & Marc Remer & Conor Ryan & Gloria Sheu, 2016. "Pass-Through and the Prediction of Merger Price Effects," Journal of Industrial Economics, Wiley Blackwell, vol. 64(4), pages 683-709, December.
    2. 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.
    3. Carey, Colleen, 2021. "Sharing the burden of subsidization: Evidence on pass-through from a subsidy revision in Medicare Part D," Journal of Public Economics, Elsevier, vol. 198(C).
    4. Correa-Giraldo, Manuel & Garcia-Rendon, John J. & Perez, Alex, 2021. "Strategic behaviors and transfer of wholesale costs to retail prices in the electricity market: Evidence from Colombia," Energy Economics, Elsevier, vol. 99(C).
    5. Paul S. Koh, 2025. "Merger Analysis with Unobserved Prices," Working papers 2025rwp-263, Yonsei University, Yonsei Economics Research Institute.
    6. Nathan H. Miller & Gloria Sheu, 2021. "Quantitative Methods for Evaluating the Unilateral Effects of Mergers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(1), pages 143-177, February.
    7. Markkanen, Jaakko, 2024. "Passthrough of Retail Price Regulation in the Market for Pharmaceuticals," ETLA Working Papers 123, The Research Institute of the Finnish Economy.
    8. 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.
    9. Dong, Changgui & Wiser, Ryan & Rai, Varun, 2018. "Incentive pass-through for residential solar systems in California," Energy Economics, Elsevier, vol. 72(C), pages 154-165.
    10. 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.
    11. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through and Welfare Measures under Imperfect Competition," Papers 1702.04967, arXiv.org, revised Dec 2018.
    12. Andre Boik, 2018. "Prediction and Identification in Two-Sided Markets," CESifo Working Paper Series 6857, CESifo.
    13. Duso, Tomaso & Szücs, Florian, 2017. "Market power and heterogeneous pass-through in German electricity retail," European Economic Review, Elsevier, vol. 98(C), pages 354-372.
    14. Gibbard, Peter & Grubb, Cameron & Wesselbaum, Dennis, 2025. "Cost pass-through in the retail electricity market: Vertically integrated versus independent retailers," Energy Economics, Elsevier, vol. 145(C).
    15. Alex Perez & Jaime Carabali & Luis Meneses, 2022. "Pass-through in Colombia s Unregulated Retail Electricity Market," International Journal of Energy Economics and Policy, Econjournals, vol. 12(4), pages 575-583, July.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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