Market Structure and Cost Pass-Through in Retail

We examine the extent to which vertical and horizontal market structure can together explain incomplete retail pass-through. To answer this question, we use scanner data from a large U.S. retailer to estimate product level pass-through for three different vertical structures: national brands, private label goods not manufactured by the retailer and private label goods manufactured by the retailer. Our findings emphasize that accounting for the interaction of vertical and horizontal structure is important for understanding how market structure affects pass-through, as a reduction in double-marginalization can raise pass-through directly but can also reduce it indirectly by increasing market share. ∗We are greatly indebted to Yuriy Gorodnichenko, Pierre-Olivier Gourinchas, David Romer, Chang-Tai Hsieh and Sofia Villas-Boas for advice, guidance and patience. We also thank Michael Devereux, Peter Christoffersen, Gregor Smith, participants of the Bank of Canada Fellowship Exchange Program, and seminar participants at the University of British Columbia, University of Washington, and Carleton University for many helpful comments. Contact Information: [email protected]; [email protected] MARKET STRUCTURE AND COST PASS-THROUGH IN RETAIL 1