Haucap, Justus Heimeshoff, Ulrich Klein, Gordon J. Rickert, Dennis Wey, Christian
Year of Publication:
CESifo Working Paper No. 8700
We examine how diﬀerent pass-through rates, from input- to ﬁnal consumer prices, and diﬀerent vertical contracts aﬀect upstream market deﬁnition. Our theory model predicts that, under reasonable conditions, higher pass-through rates lead to deﬁnitions of larger upstream markets. Data from grocery retailing is used to quantify the empirical implications of our theoretical result. We ﬁnd that resale price maintenance leads to larger upstream market deﬁnitions than linear pricing models. The reason is that linear pricing contracts are associated with lower pass-through rates under imperfect competition. We therefore advise competition authorities to carefully model vertical market structures, whenever they expect incomplete pass-through to be important.