Pass-through of Commodity Price Shocks in Distribution Channels with Risk-averse Agents
International Journal of Production Economics
30 Pages Posted: 13 Jan 2020 Last revised: 26 Apr 2021
Date Written: September 10, 2017
We apply variance analysis for studying the risk-sharing mechanism in distribution channels, in which the risk-averse buyer and supplier are suffered from commodity price shocks. We obtain the closed-form optimal pass-through rate that minimizes the total channel risk and maximizes the channel throughput for a Stackelberg leadership game and a Nash bargaining solution. Using the commodity price data in the steel industry, we demonstrate that the pass-through rate should be set between 40 and 80% for major metal alloys.
Keywords: Variance analysis, CARA, pass-through, surcharge, risk aversion, stainless steel
JEL Classification: D22,L11
Suggested Citation: Suggested Citation