Product differentiation and cost pass-through

Many food products show a high level of vertical and horizontal product differentiation. Manufacturers may instrument product differentiation to limit competition and to increase price dispersion. In this paper, we estimate a panel error correction cost pass-through model for the German yoghurt market over a six year period (t = 312) to determine the impact of product differentiation on price competition between individual brands and varieties of yoghurt. We find that more differentiated products show higher markups, reduced equilibrium cost pass-through and lower speed of cost-price adjustments. The results indicate that manufacturers (and/or retailers) use product differentiation to limit price competition.

Issue Date:
Jul 31 2016
Publication Type:
Conference Paper/ Presentation
Record Identifier:
PURL Identifier:
JEL Codes:
D4; L11; R32

 Record created 2017-04-01, last modified 2018-01-23

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