COST PASS‐THROUGH IN DIFFERENTIATED PRODUCT MARKETS: THE CASE OF U.S. PROCESSED CHEESE*

Donghun Kim and Ronald Cotterill ()

Journal of Industrial Economics, 2008, vol. 56, issue 1, 32-48

Abstract: In this paper, we estimate a mixed logit model for demand in the U.S. processed cheese market. The estimates are used to determine pass‐through rates of cost changes under different behavioral regimes. We find that, under collusion, the pass‐through rates for all brands fall between 21% and 31% while, under Nash‐Bertrand price competition, the range of pass‐through rates is between 73% and 103%. The mixed logit model provides a more flexible framework for studying pass‐through rates than the logit model since the curvature of the demand functions depends upon the empirical distribution of consumer types.

Date: 2008
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