Asymmetric cost pass-through and consumer search: empirical evidence from online platforms

Sven Heim

Quantitative Marketing and Economics (QME), 2021, vol. 19, issue 2, No 3, 227-260

Abstract: Abstract Prices often react stronger to rising than to falling costs. This asymmetric cost pass-through is still not fully understood, but recent theories suggest that asymmetric adjustments of consumers’ search efforts to rising and to falling prices may be one explanation for this pattern. I use novel panel data to investigate the interaction of consumer search intensity, pricing and cost pass-through of residential electricity tariffs on online price comparison sites. I find that consumers search slightly more when prices rise but drastically decrease search efforts when they fall. Moreover, I find direct evidence that cost pass-through heavily depends on consumers’ search efforts in that cost increases are passed-through less to the consumer when search intensity is high while cost decreases are passed-through more when search intensity is high. This finding may help upstream firms to better understand how their price changes will translate into retail price adjustments.

Keywords: Consumer search; Cost pass-through; Rockets and feathers (search for similar items in EconPapers)
JEL-codes: D83 L11 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11129-021-09233-2

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