Empirical Evidence on the Role of Non Linear Wholesale Pricing and Vertical Restraints on Cost Pass-Through
75 Pages Posted: 1 Oct 2017
Date Written: August 2011
How a cost shock is passed through into final consumer prices may relate to nominal price stickiness and rigidities, the existence of non adjustable cost components, strategic mark-up adjustments, or other contract terms along the supply distribution chain. This paper presents a simple framework to assess the potential role of non linear pricing contracts and vertical restraints, such as resale price maintenance or wholesale price discrimination in the supply chain, in explaining the degree of pass-through from upstream cost shocks in the ground coffee category to downstream retail prices. We find that resale price maintenance increases pass through rate.
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