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—Cross-Brand Pass-Through: Fact or Artifact?

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  • Leigh McAlister

    (McCombs School of Business, University of Texas at Austin, Austin, Texas 78712)

Abstract

Cross-brand pass-through implies that a retailer responds to wholesale promotional support from a target brand by changing the retail prices of competitive brands. Besanko et al. (2005) model a target brand's retail price as a function of its own and other brands' wholesale prices using 780 observations (15 price zones × 52 weeks) and take the many significant coefficients for other brands' wholesale prices that they find as evidence of cross-brand pass-through. Because price zones do not react independently to wholesale prices when they set a brand's retail price, Besanko et al.'s (2005) estimation overstates the number of independent observations by a factor of 15. When we correct for this overstatement of independent observations, we find that the number of stable, significant coefficients for other brands' wholesale prices is lower than one would expect by chance. We conclude that there is no evidence of cross-brand pass-through in the 11 categories analyzed by Besanko et al. (2005).

Suggested Citation

  • Leigh McAlister, 2007. "—Cross-Brand Pass-Through: Fact or Artifact?," Marketing Science, INFORMS, vol. 26(6), pages 876-898, 11-12.
    • Handle: RePEc:inm:ormksc:v:26:y:2007:i:6:p:876-898
    DOI: 10.1287/mksc.1060.0242
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    4. Vincent Nijs & Kanishka Misra & Eric T. Anderson & Karsten Hansen & Lakshman Krishnamurthi, 2010. "Channel Pass-Through of Trade Promotions," Marketing Science, INFORMS, vol. 29(2), pages 250-267, 03-04.
    5. Kusum L. Ailawadi & Bari A. Harlam, 2009. "—Retailer Promotion Pass-Through: A Measure, Its Magnitude, and Its Determinants," Marketing Science, INFORMS, vol. 28(4), pages 782-791, 07-08.
    6. Kusum Ailawadi & Eric Bradlow & Michaela Draganska & Vincent Nijs & Robert Rooderkerk & K. Sudhir & Kenneth Wilbur & Jie Zhang, 2010. "Empirical models of manufacturer-retailer interaction: A review and agenda for future research," Marketing Letters, Springer, vol. 21(3), pages 273-285, September.
    7. Jason A. Duan & Leigh McAlister & Shameek Sinha, 2011. "Commentary--Reexamining Bayesian Model-Comparison Evidence of Cross-Brand Pass-Through," Marketing Science, INFORMS, vol. 30(3), pages 550-561, 05-06.
    8. Pancras, Joseph & Gauri, Dinesh K. & Talukdar, Debabrata, 2013. "Loss leaders and cross-category retailer pass-through: A Bayesian multilevel analysis," Journal of Retailing, Elsevier, vol. 89(2), pages 140-157.
    9. Blakeley B. McShane & Chaoqun Chen & Eric T. Anderson & Duncan I. Simester, 2016. "Decision Stages and Asymmetries in Regular Retail Price Pass-Through," Marketing Science, INFORMS, vol. 35(4), pages 619-639, July.
    10. Desheng Wu, 2017. "Pass-through decision analysis in a supply chain," Annals of Operations Research, Springer, vol. 257(1), pages 297-316, October.
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