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

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  • Thomas Bittmann
  • Jens‐Peter Loy
  • Sven Anders

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.

Suggested Citation

  • Thomas Bittmann & Jens‐Peter Loy & Sven Anders, 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(4), pages 1184-1209, October.
    • Handle: RePEc:bla:ajarec:v:64:y:2020:i:4:p:1184-1209
    DOI: 10.1111/1467-8489.12399
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    2. Wang, X. Henry & Zhao, Jingang, 2022. "Merger effects in asymmetric and differentiated Bertrand oligopolies," Mathematical Social Sciences, Elsevier, vol. 120(C), pages 37-49.

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