Premium
Product differentiation and cost pass‐through: industry‐wide versus firm‐specific cost shocks
Author(s) -
Bittmann Thomas,
Loy JensPeter,
Anders Sven
Publication year - 2020
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/1467-8489.12399
Subject(s) - product differentiation , product (mathematics) , product proliferation , oligopoly , industrial organization , microeconomics , economics , fixed cost , competition (biology) , panel data , new product development , set (abstract data type) , business , econometrics , marketing , cournot competition , product management , computer science , ecology , geometry , mathematics , biology , programming language
This paper investigates the impact of product differentiation on firm‐specific and industry‐wide cost pass‐through in grocery retailing. We use attribute distance measures to model product differentiation based on a unique set of retail scanner data for ready‐to‐eat soup products in the Canadian market. Results from a panel error correction model suggest that product differentiation explains a significant share of the variation in the rate of cost pass‐through across products. More differentiated products are associated with lower rates of cost pass‐through of industry‐wide and higher pass‐through of firm‐specific costs shocks. The findings validate an oligopolistic model of product differentiation, where firms use differentiation as a non‐price competitive factor in strategic pricing decisions.