Pass-through as an Economic Tool

Résumé

Pass-through rates play an analogous role in imperfectly competitive markets to elasticities under perfect competition. Log-curvature of demand links the pass-through of cost and production shocks to the division between consumer and producer surplus. Therefore in a wide range of single-product, symmetric multi-product, two-sided markets and merger analysis models knowledge of simple qualitative properties of the pass-through rate sign, and full knowledge of it quantfies, many comparative statics. Most functional forms for theoretical and empirical analysis put unjustified ex-ante restrictions on pass-through rates, a limitation our Adjustable-pass-through (Apt) demand and Constant Pass-through Demand System (CoPaDS) avoid. Appendices are available on request.