Product differentiation and cost pass-through: industry-wide versus firm-specific cost shocks

Thomas Bittmann, Jens-Peter Loy and Sven Anders

Australian Journal of Agricultural and Resource Economics, 2020, vol. 64, issue 04

Abstract: This paper investigates the impact of product differentiation on firm-specific and industry-wide cost pass-through in grocery retailing. We use attribute distance measures to model product differentiation based on a unique set of retail scanner data for ready-to-eat soup products in the Canadian market. Results from a panel error correction model suggest that product differentiation explains a significant share of the variation in the rate of cost pass-through across products. More differentiated products are associated with lower rates of cost pass-through of industry-wide and higher pass-through of firm-specific costs shocks. The findings validate an oligopolistic model of product differentiation, where firms use differentiation as a non-price competitive factor in strategic pricing decisions.

Keywords: Demand; and; Price; Analysis (search for similar items in EconPapers)
Date: 2020
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Journal Article: Product differentiation and cost pass‐through: industry‐wide versus firm‐specific cost shocks (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aareaj:342935

DOI: 10.22004/ag.econ.342935

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