Vertical relations, pass-through, and market definition: Evidence from grocery retailing

Justus Haucap, Ulrich Heimeshoff, Gordon Klein (), Dennis Rickert and Christian Wey ()

International Journal of Industrial Organization, 2021, vol. 74, issue C

Abstract: We examine how different pass-through rates from input prices to retail prices and different vertical contracts affect upstream market definition. Simple theoretical considerations suggest that vertical restraints induce higher pass-through rates and thus lead to a larger upstream market definition when compared to linear wholesale pricing, given that contracts with linear pricing are associated with lower pass-through rates under imperfect competition. Data from grocery retailing is used to quantify the empirical implications of our theoretical assertion. We find that resale price maintenance leads to larger upstream market definitions than linear pricing. We therefore advise competition authorities to carefully model vertical market structures, whenever they expect incomplete pass-through to be important.

Keywords: Market definition; Vertical relations; Pass-through; Structural models (search for similar items in EconPapers)
JEL-codes: C5 L1 L4 L8 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Vertical relations, pass-through, and market definition: Evidence from grocery retailing (2021)
Working Paper: Vertical Relations, Pass-through, and Market Definition: Evidence from Grocery Retailing (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:74:y:2021:i:c:s0167718720301168

DOI: 10.1016/j.ijindorg.2020.102693

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