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Product differentiation and cost pass-through: industry-wide versus firm-specific cost shocks

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  • Bittmann, Thomas
  • Loy, Jens-Peter
  • Anders, Sven

Abstract

This paper investigates the impact of product differentiation on firm-specific and industry-wide cost pass-through in grocery retailing. We use attribute distance measures to model product differentiation based on a unique set of retail scanner data for ready-to-eat soup products in the Canadian market. Results from a panel error correction model suggest that product differentiation explains a significant share of the variation in the rate of cost pass-through across products. More differentiated products are associated with lower rates of cost pass-through of industry-wide and higher pass-through of firm-specific costs shocks. The findings validate an oligopolistic model of product differentiation, where firms use differentiation as a non-price competitive factor in strategic pricing decisions.

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  • Bittmann, Thomas & Loy, Jens-Peter & Anders, Sven, 2020. "Product differentiation and cost pass-through: industry-wide versus firm-specific cost shocks," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 64(04), January.
    • Handle: RePEc:ags:aareaj:342935
    DOI: 10.22004/ag.econ.342935
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