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Market Structure, Cost Pass-Through and Welfare with Differentiated Products

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Abstract

In this paper, we estimate a mixed logit model for the U.S. processed cheese market and implement cost pass-through simulations and related consumer welfare analysis under different regimes of competition. In the model, the curvature of demand is determined to a significant extent by the empirical distribution of consumers. This property reduces the prediction errors of cost pass-through caused by an erroneous assumption as to the functional form of demand. We find that, under collusion, the pass-through rates for all brands fall between 23% and 37% and under Nash price competition, the range of pass-through is 67% ~ 98%.

Suggested Citation

  • Ronald W.Cotterill & Donghun Kim, 2006. "Market Structure, Cost Pass-Through and Welfare with Differentiated Products," Working Papers EMS_2006_05, Research Institute, International University of Japan.
    • Handle: RePEc:iuj:wpaper:ems_2006_05
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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