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Vertical relations, pass-through, and market definition: Evidence from grocery retailing

Author

Listed:
  • Justus Haucap

    (DICE - Düsseldorf Institute for Competition Economics - Heinrich Heine Universität Düsseldorf = Heinrich Heine University [Düsseldorf])

  • Ulrich Heimeshoff

    (DICE - Düsseldorf Institute for Competition Economics - Heinrich Heine Universität Düsseldorf = Heinrich Heine University [Düsseldorf])

  • Gordon Klein

    (WWU - Westfälische Wilhelms-Universität Münster = University of Münster)

  • Dennis Rickert

    (CERNA i3 - Centre d'économie industrielle i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique, DICE - Düsseldorf Institute for Competition Economics - Heinrich Heine Universität Düsseldorf = Heinrich Heine University [Düsseldorf])

  • Christian Wey

Abstract

We examine how different pass-through rates, from input- to final consumer prices, and different vertical contracts affect upstream market definition. Our theory model predicts that, under reasonable conditions, higher pass-through rates lead to definitions of larger upstream markets. Data from grocery retailing is used to quantify the empirical implications of our theoretical result. We find that resale price maintenance leads to larger upstream market definitions than linear pricing models. The reason is that linear pricing contracts are associated with lower pass-through rates under imperfect competition. We therefore advise competition authorities to carefully model vertical market structures, whenever they expect incomplete pass-through to be important.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Justus Haucap & Ulrich Heimeshoff & Gordon Klein & Dennis Rickert & Christian Wey, 2021. "Vertical relations, pass-through, and market definition: Evidence from grocery retailing," Post-Print hal-03223920, HAL.
    • Handle: RePEc:hal:journl:hal-03223920
    DOI: 10.1016/j.ijindorg.2020.102693
    Note: View the original document on HAL open archive server: https://minesparis-psl.hal.science/hal-03223920v1
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    Cited by:

    1. Philippe Gagnepain & Stéphane Gauthier, 2021. "Strategic uncertainty and market size: An illustration on the Wright amendment," Working Papers halshs-03359597, HAL.
    2. Alisa Frey & Justus Haucap, 2024. "VAT pass-through: the case of a large and permanent reduction in the market for menstrual hygiene products," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(1), pages 160-202, February.
    3. Sébastien Houde & Wenjun Wang, 2022. "The Incidence of the U.S.-China Solar Trade War," CER-ETH Economics working paper series 22/372, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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