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Multi-product firm price and variety response to firm-specific cost shocks

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  • Antoniades, Alexis
  • Clerides, Sofronis
  • Xu, Mingzhi

Abstract

A large literature studies how prices respond to changes in market conditions. More recent work examines firm adjustments along the product quality and variety channels. We present a theoretical model of heterogeneous, multi-product firms to characterize the response of firms to idiosyncratic cost shocks along the price and variety channels. The model delivers rich implications and interesting trade-offs between the two channels. Large firms respond to a cost increase by raising both prices and scope. Relative to smaller firms, they respond more through scope than prices. Availability of the variety channel eases pressures to absorb cost changes and increases pass-through.

Suggested Citation

  • Antoniades, Alexis & Clerides, Sofronis & Xu, Mingzhi, 2023. "Multi-product firm price and variety response to firm-specific cost shocks," International Journal of Industrial Organization, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:indorg:v:90:y:2023:i:c:s0167718723000656
    DOI: 10.1016/j.ijindorg.2023.102984
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    More about this item

    Keywords

    Multi-product firms; Cost shock; Pass-through;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F1 - International Economics - - Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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