Market Structure, Cost Pass-Through and Welfare with Differentiated Products

Ronald Cotterill () and Donghun Kim
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Donghun Kim: International University of Japan, http://www.iuj.ac.jp/

No EMS_2006_05, Working Papers from Research Institute, International University of Japan

Abstract: In this paper, we estimate a mixed logit model for the U.S. processed cheese market and implement cost pass-through simulations and related consumer welfare analysis under different regimes of competition. In the model, the curvature of demand is determined to a significant extent by the empirical distribution of consumers. This property reduces the prediction errors of cost pass-through caused by an erroneous assumption as to the functional form of demand. We find that, under collusion, the pass-through rates for all brands fall between 23% and 37% and under Nash price competition, the range of pass-through is 67% ~ 98%.

Keywords: Market Structure; Cost Pass-Through; Consumer Welfare; Mixed Logit (search for similar items in EconPapers)
JEL-codes: D40 D60 H20 L13 L66 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006-01
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