Understanding Cost Pass-Through when Prices are Dispersed

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• Luke Garrod ( Loughborough University)
• Wednesday 16 October 2024, 17:00-18:00
• W2.02, Cambridge Judge Business School.

If you have a question about this talk, please contact Emily Brown.

Understanding how cost changes impact prices is fundamental for many areas of economics, but there is limited theoretical understanding of the determinants of pass-through within settings where prices are dispersed. Under a general demand function, we analyse cost pass-through within a seminal model of price dispersion where consumers vary in their level of market engagement (Varian 1980). We show how the curvature of demand remains key in understanding cost pass-through.

Specifically, we find that demand curvature affects:

• whether expected pass-through rates are less or greater than one
• whether price dispersion increases or decreases following a cost rise
• whether a cost increase will have a greater impact on the prices paid by more or less engaged consumers
• how competition affects cost pass-through

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This talk is part of the Economics & Policy Seminars, CJBS series.

This talk is included in these lists:

• Economics & Policy Seminars, CJBS
• W2.02, Cambridge Judge Business School

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