PASS-THROUGH RATES WHEN FIRMS CAN VARY PACKAGE SIZES

Alexei Alexandrov

Journal of Competition Law and Economics, 2014, vol. 10, issue 3, 611-619

Abstract: I show that when firms can change the quantity of product offered in each package, the standard pass-through rate calculations need to be adjusted. In particular, if a firm’s cost increases, the firm decreases the quantity of the product offered and the price of the package, resulting in a negative pass-through rate. Calculating the pass-through rate using the per-unit quantity price restores the expected positive pass-through rate. The results are confirmed by many observations from the industry and continue to hold when firms offer a product line and engage in second-degree price discrimination.

JEL-codes: K21 L11 L41 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Journal of Competition Law and Economics is currently edited by Nicholas Economides, Amelia Fletcher, Michal Gal, Damien Geradin, Ioannis Lianos and Tommaso Valletti

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