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Generalized linear competition: From pass-through to policy

Author

Listed:
  • Christos Genakos

    (CJBS, University of Cambridge)

  • Felix Grey

    (Faculty of Economics and Energy Policy Research Group, University of Cambridge)

  • Robert Ritz

    (EPRG, CJBS, University of Cambridge)

Abstract

Economic policy and shifts in input market prices often have significant effects on the marginal costs of firms and can prompt strategic responses that make their impact hard to predict. We introduce “generalized linear competition” (GLC), a new model that nests many existing theories of imperfect competition. We show how firm-level cost pass-through is a sufficient statistic to calculate the impact of a cost shift on an individual firm’s profits. GLC sidesteps estimation of a demand system and requires no assumptions about the mode of competition, rivals’ technologies and strategies, or “equilibrium”. In an empirical application to the US airline market, we demonstrate GLC’s usefulness for ex ante policy evaluation and identify the winners and losers of climate-change policy. We also show how GLC’s structure, under additional assumptions, can be used for welfare analysis and to endogenize the extent of regulation.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Christos Genakos & Felix Grey & Robert Ritz, 2020. "Generalized linear competition: From pass-through to policy," Working Papers EPRG2023, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg2023
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    Cited by:

    1. Galloway, Tracey & Li, Nicholas, 2023. "Pass-through of subsidies to prices under limited competition: Evidence from Canada’s Nutrition North program," Journal of Public Economics, Elsevier, vol. 225(C).

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    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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