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Product differentiation and cost pass-through

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  • Loy, Jens-Peter
  • Glauben, Thomas

Abstract

Many food products show a high level of vertical and horizontal product differentiation. Manufacturers may instrument product differentiation to limit competition and to increase price dispersion. In this paper, we estimate a panel error correction cost pass-through model for the German yoghurt market over a six year period (t = 312) to determine the impact of product differentiation on price competition between individual brands and varieties of yoghurt. We find that more differentiated products show higher markups, reduced equilibrium cost pass-through and lower speed of cost-price adjustments. The results indicate that manufacturers (and/or retailers) use product differentiation to limit price competition.

Suggested Citation

  • Loy, Jens-Peter & Glauben, Thomas, 2016. "Product differentiation and cost pass-through," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235400, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea16:235400
    DOI: 10.22004/ag.econ.235400
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    References listed on IDEAS

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    1. Curtis Eaton, B. & Lipsey, Richard G., 1989. "Product differentiation," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 12, pages 723-768, Elsevier.
    2. Beath,John & Katsoulacos,Yannis, 1991. "The Economic Theory of Product Differentiation," Cambridge Books, Cambridge University Press, number 9780521335263, November.
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    Keywords

    Agribusiness; Demand and Price Analysis; Industrial Organization;
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