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Does competition increase pass-through?

Author

Listed:
  • Robert Ritz

    (EPRG, CJBS, University of Cambridge)

Abstract

In recent years, the literature has seen a surge of interest in pass‐through as an economic tool. At the same time, widespread concerns have emerged about the rising market power of firms. How does competition affect pass‐through? A standard intuition is that more competition makes prices more cost‐reflective and hence raises the rate of cost pass‐through. This article shows this conclusion is sensitive to the routine assumption that firms' marginal costs are constant. With modestly convex costs, market power can raise pass‐through (even when it lies below 1). These results have implications for antitrust policy, environmental regulation, and welfare analysis.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Robert Ritz, 2019. "Does competition increase pass-through?," Working Papers EPRG1929, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1929
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    Citations

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    Cited by:

    1. Chi Kong Chyong & David M Reiner & Dhruvak Aggarwal, 2023. "Market Power and Long-term Gas Contracts: The Case of Gazprom in Central and Eastern European Gas Markets," The Energy Journal, , vol. 44(1), pages 55-74, January.
    2. Holmberg, Pär & Ruddell, Keith & Willems, Bert, 2025. "Multi-Product Supply Function Equilibria," Working Paper Series 1537, Research Institute of Industrial Economics.
    3. Luke Garrod & Tien-Der Han & James Harvey & Matthew Olczak, 2025. "Cartel Damages Claims, Passing-On, and Passing-Back," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 66(3), pages 261-292, March.
    4. Dong, Chang & Atallah, Gamal & Galdo, Jose, 2025. "Cost pass-through in the U.S. aviation industry," Journal of Air Transport Management, Elsevier, vol. 127(C).
    5. Bustos, Emil, 2023. "The Effect of Centrally Bargained Wages on Firm Growth," Working Paper Series 1456, Research Institute of Industrial Economics.
    6. Bowei Guo & Newbery David, 2023. "The Cost of Carbon Leakage: Britain’s Carbon Price Support and Cross-border Electricity Trade," The Energy Journal, , vol. 44(1), pages 9-32, January.
    7. Wozny, Florian, 2025. "From Tax Incidence to Emission Reduction: The Pass-through of Air Passenger Taxes," VfS Annual Conference 2025 (Cologne): Revival of Industrial Policy 325370, Verein für Socialpolitik / German Economic Association.
    8. 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).
    9. Adachi, Takanori, 2020. "Hong and Li meet Weyl and Fabinger: Modeling vertical structure by the conduct parameter approach," Economics Letters, Elsevier, vol. 186(C).
    10. Christos Genakos & Blair Yuan Lyu & Mario Pagliero, 2024. "Asymmetric pass-through and competition," CEP Discussion Papers dp2028, Centre for Economic Performance, LSE.

    More about this item

    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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