Using Cost Pass-Through to Calibrate Demand

Economic Analysis Group Discussion Paper EAG 12-9

10 Pages Posted: 15 Nov 2012  

Nathan H. Miller

U.S. Department of Justice

Marc Remer

Swathmore College

Gloria Sheu

Government of the United States of America - Department of Justice

Date Written: October 2012

Abstract

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.

Keywords: cost pass-through, demand calibration, merger simulation

JEL Classification: K21, L13, L41

Suggested Citation

Miller, Nathan H. and Remer, Marc and Sheu, Gloria, Using Cost Pass-Through to Calibrate Demand (October 2012). Economic Analysis Group Discussion Paper EAG 12-9. Available at SSRN: https://ssrn.com/abstract=2175096 or http://dx.doi.org/10.2139/ssrn.2175096

Nathan H. Miller (Contact Author)

U.S. Department of Justice ( email )

450 Fifth St. NW
Room 9418
Washington, DC 20530
United States

Marc Remer

Swathmore College ( email )

500 College Ave
Swarthmore, PA 19081
United States

Gloria Sheu

Government of the United States of America - Department of Justice ( email )

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