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COST PASS‐THROUGH IN DIFFERENTIATED PRODUCT MARKETS: THE CASE OF U.S. PROCESSED CHEESE *
Author(s) -
KIM DONGHUN,
COTTERILL RONALD W.
Publication year - 2008
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2008.00331.x
Subject(s) - collusion , logit , econometrics , competition (biology) , economics , product differentiation , product (mathematics) , range (aeronautics) , logistic regression , microeconomics , nested logit , curvature , mathematics , statistics , cournot competition , geometry , ecology , materials science , composite material , biology
In this paper, we estimate a mixed logit model for demand in the U.S. processed cheese market. The estimates are used to determine pass‐through rates of cost changes under different behavioral regimes. We find that, under collusion, the pass‐through rates for all brands fall between 21% and 31% while, under Nash‐Bertrand price competition, the range of pass‐through rates is between 73% and 103%. The mixed logit model provides a more flexible framework for studying pass‐through rates than the logit model since the curvature of the demand functions depends upon the empirical distribution of consumer types.