Pass-through of commodity price shocks in distribution channels with risk-averse agents

Phat V. Luong and Xiaowei Xu

International Journal of Production Economics, 2020, vol. 226, issue C

Abstract: We apply variance analysis for studying the risk sharing mechanism in distribution channels, in which the risk-averse buyer and supplier are suffered from commodity price shocks. We obtain the closed-form optimal pass-through rate that minimizes the total channel price/cost risk and maximizes the channel throughput for a Stackelberg leadership game and a Nash bargaining solution. Using the commodity price data in the steel industry, we demonstrate that the pass-through rate should be set between 40 and 80% for major metal alloys.

Keywords: Variance analysis; Risk aversion; CARA; Pass-through; Surcharge; Stainless steel (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:226:y:2020:i:c:s0925527319304402

DOI: 10.1016/j.ijpe.2019.107609

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