Vertical Relations, Pass-Through, and Market Definition: Evidence from Grocery Retailing

51 Pages Posted: 19 Nov 2020

See all articles by Justus Haucap

Justus Haucap

Heinrich Heine University Dusseldorf - Department of Economics; German Institute for Economic Research (DIW Berlin)

Ulrich Heimeshoff

University of Duesseldorf

Gordon J. Klein

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

Dennis Rickert

Université Paris-Dauphine, PSL Research University - MINES ParisTech

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE)

Date Written: 2020

Abstract

We examine how different pass-through rates, from input- to final consumer prices, and different vertical contracts affect upstream market definition. Our theory model predicts that, under reasonable conditions, higher pass-through rates lead to definitions of larger upstream markets. Data from grocery retailing is used to quantify the empirical implications of our theoretical result. We find that resale price maintenance leads to larger upstream market definitions than linear pricing models. The reason is that linear pricing contracts are associated with lower pass-through rates under imperfect competition. We therefore advise competition authorities to carefully model vertical market structures, whenever they expect incomplete pass-through to be important.

Keywords: market definition, vertical relations, pass-through, structural models

JEL Classification: L100, L400, L800, C500

Suggested Citation

Haucap, Justus and Heimeshoff, Ulrich and Klein, Gordon J. and Rickert, Dennis and Wey, Christian, Vertical Relations, Pass-Through, and Market Definition: Evidence from Grocery Retailing (2020). CESifo Working Paper No. 8700, Available at SSRN: https://ssrn.com/abstract=3733274

Justus Haucap

Heinrich Heine University Dusseldorf - Department of Economics ( email )

Duesseldorf
Germany

HOME PAGE: http://www.dice.uni-duesseldorf.de

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Ulrich Heimeshoff

University of Duesseldorf ( email )

Universitätsstraße 1
Dusseldorf, 40225
Germany

Gordon J. Klein

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

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Dennis Rickert (Contact Author)

Université Paris-Dauphine, PSL Research University - MINES ParisTech ( email )

60 boulevard Saint Michel
Paris, 75272
France

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany
+49-211-81-15009 (Phone)
+49-211-81-15499 (Fax)

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