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Pass-Through, Vertical Contracts, and Bargains

11 Pages Posted: 5 Mar 2015 Last revised: 14 Nov 2015

Germain Gaudin

European Commission - Directorate General for Competition; Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)

Date Written: November 13, 2015

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 pass-through 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.

Keywords: Pass-through, Exchange Rate, Vertical contracting, Bargaining

JEL Classification: F31, L11, L81

Suggested Citation

Gaudin, Germain, Pass-Through, Vertical Contracts, and Bargains (November 13, 2015). Available at SSRN: https://ssrn.com/abstract=2573516 or http://dx.doi.org/10.2139/ssrn.2573516

Germain Gaudin (Contact Author)

European Commission - Directorate General for Competition ( email )

Place Madou, Madouplein 1
Saint-Josse-ten-Noode/Sint-Joost-ten-Noode
Brussels, B-1049
Belgium

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

HOME PAGE: http://sites.google.com/site/germaingaudin

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