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Pass-through, vertical contracts, and bargains

Author

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  • Germain Gaudin

    (Heinrich Heine Universität Düsseldorf = Heinrich Heine University [Düsseldorf])

Abstract
This paper analyzes the determinants of pass-through that are specific to vertical relationships between wholesalers and retailers. Fluctuations in input costs (due to, e.g., exchange rate shocks) are transmitted first to the wholesale price, and then to the retail price. The type of vertical agreement firms contract upon as well as their relative bargaining power are identified as major determinants of pass-through rates. The relationship between passthrough rates at the wholesale and retail levels is also investigated. Finally, the result of Bresnahan and Reiss (1985) on markup ratio is extended to the case where firms bargain over the wholesale price.
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Suggested Citation

  • Germain Gaudin, 2016. "Pass-through, vertical contracts, and bargains," Post-Print hal-02410488, HAL.
    • Handle: RePEc:hal:journl:hal-02410488
    DOI: 10.1016/j.econlet.2015.11.043
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    References listed on IDEAS

    as
    1. Celine Bonnet & Pierre Dubois & Sofia B. Villas Boas & Daniel Klapper, 2013. "Empirical Evidence on the Role of Nonlinear Wholesale Pricing and Vertical Restraints on Cost Pass-Through," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 500-515, May.
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    10. Timothy F. Bresnahan & Peter C. Reiss, 1985. "Dealer and Manufacturer Margins," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 253-268, Summer.
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    14. Adachi, Takanori & Ebina, Takeshi, 2014. "Double marginalization and cost pass-through: Weyl–Fabinger and Cowan meet Spengler and Bresnahan–Reiss," Economics Letters, Elsevier, vol. 122(2), pages 170-175.
    15. Gérard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
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    Cited by:

    1. William P. Rogerson, 2021. "The Upstream Pass-Through Rate, Bargaining Power and the Magnitude of the Raising Rivals’ Costs (RRC) Effect," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 205-227, September.
    2. Noriaki Matsushima & Shohei Yoshida, 2016. "The countervailing power hypothesis when dominant retailers function as sales promoters," ISER Discussion Paper 0981, Institute of Social and Economic Research, Osaka University.
    3. Shohei Yoshida, 2018. "Bargaining power and firm profits in asymmetric duopoly: an inverted-U relationship," Journal of Economics, Springer, vol. 124(2), pages 139-158, June.
    4. Etilé, F.; & Lecocq, S.; & Boizot-Szantaï, C.;, 2018. "The Incidence of Soft-Drink Taxes on Consumer Prices and Welfare:Evidence from the French “Soda Taxâ€," Health, Econometrics and Data Group (HEDG) Working Papers 18/13, HEDG, c/o Department of Economics, University of York.
    5. Noriaki Matsushima & Shohei Yoshida, 2018. "The Countervailing Power Hypothesis when Dominant Retailers Function as Sales Promoters," Manchester School, University of Manchester, vol. 86(5), pages 665-680, September.
    6. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    7. Luong, Phat V. & Xu, Xiaowei, 2020. "Pass-through of commodity price shocks in distribution channels with risk-averse agents," International Journal of Production Economics, Elsevier, vol. 226(C).
    8. Anna Goeddeke & Justus Haucap & Annika Herr & Christian Wey, 2018. "Flexibility in Wage Setting Under the Threat of Relocation," LABOUR, CEIS, vol. 32(1), pages 1-22, March.
    9. Garrod, Luke & Han, Tien-Der Jerry & Harvey, James & Olczak, Matthew, 2023. "Cartel Damages Claims, Passing-On and Passing-Back," MPRA Paper 116471, University Library of Munich, Germany.
    10. Dennis Rickert & Jan Philip Schain & Joel Stiebale, 2021. "Local Market Structure and Consumer Prices: Evidence from a Retail Merger," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 692-729, September.
    11. Aghadadashli, Hamid & Dertwinkel-Kalt, Markus & Wey, Christian, 2016. "The Nash bargaining solution in vertical relations with linear input prices," Economics Letters, Elsevier, vol. 145(C), pages 291-294.
    12. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through and Welfare Measures under Imperfect Competition," Papers 1702.04967, arXiv.org, revised Dec 2018.
    13. Durevall, Dick, 2017. "Cost Pass-Through in the Swedish Coffee Market," HUI Working Papers 120, HUI Research.
    14. Matsumoto, Tomoki & Kamai, Tomohito & Kanazawa, Yuichiro, 2024. "Examining bargaining power in the distribution channel under possible price pass-through behaviors of retailers," Journal of Retailing and Consumer Services, Elsevier, vol. 76(C).
    15. Farkas, Richárd & Yontcheva, Biliana, 2019. "Price transmission in the presence of a vertically integrated dominant firm: Evidence from the gasoline market," Energy Policy, Elsevier, vol. 126(C), pages 223-237.
    16. Duso, Tomaso & Szücs, Florian, 2017. "Market power and heterogeneous pass-through in German electricity retail," European Economic Review, Elsevier, vol. 98(C), pages 354-372.
    17. Zhong, Feimin & Zhou, Zhongbao & Leng, Mingming, 2021. "Negotiation-sequence, pricing, and ordering decisions in a three-echelon supply chain: A coopetitive-game analysis," European Journal of Operational Research, Elsevier, vol. 294(3), pages 1096-1107.
    18. Rebolledo, Mayra, 2020. "M&A, uncertainty, and bargaining power: Evidence from the German retail sector," CAWM Discussion Papers 116, University of Münster, Münster Center for Economic Policy (MEP).
    19. Durevall, Dick, 2017. "Cost Pass-Through in the Swedish Coffee Market," Working Papers in Economics 697, University of Gothenburg, Department of Economics.
    20. Teresa Messner & Thomas Zörner, 2023. "Aggregate price pressures along the supply chain: a euro area perspective," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/22-Q1/, pages 21-32.
    21. Fu, Xiao & Tan, Guofu, 2024. "Double markups under bilateral vertical contracting," Economics Letters, Elsevier, vol. 237(C).
    22. Takanori Adachi & Muhammad Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    23. Lømo, Teis Lunde, 2020. "Vertical control, opportunism, and risk sharing," Economics Letters, Elsevier, vol. 191(C).
    24. Fabrice Etilé & Sebastien Lecocq & Christine Boizot-Szantai, 2018. "The Incidence of Soft-Drink Taxes on Consumer Prices and Welfare: Evidence from the French " Soda Tax"," Working Papers halshs-01808198, HAL.
    25. Lømo, Teis Lunde, 2024. "Overlapping ownership and input prices," International Journal of Industrial Organization, Elsevier, vol. 94(C).

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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