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Bias in Reduced-Form Estimates of Pass-through

Alexander MacKay, Nathan Miller, Marc Remer and Gloria Sheu
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Nathan Miller: Georgetown University, McDonough School of Business

No 201401, EAG Discussions Papers from Department of Justice, Antitrust Division

Abstract: We show that, in general, consistent estimates of cost pass-through are not obtained from reduced-form regressions of price on cost. We derive a formal approximation for the bias that arises even under standard orthogonality conditions. We provide guidance on the conditions under which bias may frustrate inference.

Pages: 9 pages
Date: 2014-02
New Economics Papers: this item is included in nep-com and nep-reg
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