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Cost pass-through elasticities, concentration and productivity growth

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  • Vaughan Dickson

Abstract

Cost pass-through elasticities measure the percentage decrease in prices from a percentage cost reduction. For given cost reductions, lower elasticities harm consumers through a lower pass-through to prices. But these same lower elasticities may increase cost-reducing innovation by firms and thereby help consumers by leading to lower prices. To explore this trade-off, pass-through elasticities are first estimated for 253 US manufacturing industries. After this, two second-stage regressions that use the estimated elasticities are introduced. The first regression finds that higher seller concentration leads to lower pass-through elasticities, whereas the second finds that the lower pass-through elasticities, which accompany higher concentration, lead to higher average annual productivity growth. This means there is a trade-off, and lower elasticities can benefit consumers.

Suggested Citation

  • Vaughan Dickson, 2010. "Cost pass-through elasticities, concentration and productivity growth," Applied Economics Letters, Taylor & Francis Journals, vol. 17(7), pages 663-666.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:7:p:663-666
    DOI: 10.1080/13504850802297962
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    References listed on IDEAS

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    1. Jiawen Yang, 1997. "Exchange Rate Pass-Through In U.S. Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 95-104, February.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    3. Majumdar, Sumit K, 1997. "Incentive Regulation and Productive Efficiency in the U.S. Telecommunications Industry," The Journal of Business, University of Chicago Press, vol. 70(4), pages 547-576, October.
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