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Bertram Neurohr
''A tractable cost pass-through benchmark''
( 2016, Vol. 36 No.3 )
Under the assumptions of constant marginal costs, linear demand and symmetric cross-price effects, the equilibrium rates at which firms pass cost changes through to prices can be calculated from diversion ratios. The resulting pass-through benchmark makes it possible to capture market asymmetries and can easily be extended to cover not just the conventional cases of firm-specific and industrywide cost changes but also cases where some but not all firms face a cost change and where the degree of exposure to the cost change varies between firms. As such the benchmark is more accurate and adaptable than existing benchmarks and also has a number of practical advantages vis-à-vis more complex approaches.
Keywords: pass-through, asymmetry, diversion ratios, differentiated products, umbrella effects, asymmetric cost changes
JEL: L5 - Regulation and Industrial Policy: General
L4 - Antitrust Issues and Policies: General
Manuscript Received : May 18 2016 Manuscript Accepted : Aug 24 2016

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