Using Cost Pass-Through to Calibrate Demand
Nathan H. Miller
U.S. Department of Justice
Government of the United States of America - Department of Justice
Economic Analysis Group Discussion Paper EAG 12-9
We demonstrate that cost pass-through can be used to inform demand calibration, potentially eliminating the need for data on margins, diversion, or both. We derive the relationship between cost pass-through and consumer demand using a general oligopoly model of Nash-Bertrand competition and develop specific results for four demand systems: linear demand, logit demand, the Almost Ideal Demand System (AIDS), and log-linear demand. The methods we propose may be useful to researchers and antitrust authorities when reliable measures of margins or diversion are unavailable.
Number of Pages in PDF File: 10
Keywords: cost pass-through, demand calibration, merger simulation
JEL Classification: K21, L13, L41
Date posted: November 15, 2012
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