Downloads
Download working paper here
PDF | 539.68 KB
The degree of pass-through of input cost changes is relevant in several contexts, including estimating antitrust damages and evaluating the impact of changes in taxation. In recent antitrust cases it has been alleged that the adoption of focal pricing by firms reduces the degree of pass-through in an industry. I show that this claim is not theoretically sound by outlining a simple model where focal pricing leaves expected pass-through unaffected. However, focal pricing does lead to more lumpiness in the distribution of pass-through. This paper reinforces the importance of context-specific empirical analysis to determine the degree of pass-through in an industry, regardless of the presence of focal pricing.
Authors
PhD Scholar University College London
Francesca is an IFS PhD Scholar. She is currently an ESRC scholar at UCL, where she is undertaking her doctoral research in applied microeconomics.
Working Paper details
- DOI
- 10.1920/wp.ifs.2024.3724
- Publisher
- Institute for Fiscal Studies
Suggested citation
Arduini, F. (2024). Focal pricing and pass-through. 24/37. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/focal-pricing-and-pass-through (accessed: 13 December 2024).
More from IFS
Understand this issue
Why did the French Budget fail to pass?
France’s failed budget highlights fundamental challenges with public debt, slow growth, and the need for significant reforms.
12 December 2024
Inheritance tax and farms
The Autumn 2024 Budget brought some agricultural property into inheritance tax. What are the changes? Who will be affected? Were they a good idea?
25 November 2024
What does the Budget mean for the UK?
We discuss the Chancellor's first Budget and what impact the changes could have.
31 October 2024
Policy analysis
The increases in Scotland’s top rate of income tax may have reduced revenues – although significant uncertainty remains
Scotland’s income tax rises have likely increased tax avoidance and migration – but the size of the effects is uncertain.
15 November 2024
François Gerard announced as new TaxDev Research Director
We are pleased to announce the appointment of François Gerard as TaxDev’s new Research Director.
8 November 2024
Autumn Budget 2024: IFS analysis
At this online webinar IFS researchers presented their initial response to new Chancellor Rachel Reeves' first Budget.
Academic research
Individual welfare analysis: Random quasilinear utility, independence and confidence bounds
We introduce a novel framework for individual-level welfare analysis.
13 December 2024
Inference for parameters identified by conditional moment restrictions using a generalized Bierens maximum statistic
Building on Bierens (1990), we propose penalized maximum statistics and combine bootstrap inference with model selection.
13 December 2024
Treatment effects with targeting instruments
Multivalued treatment is commonplace in applications. We explore the use of discrete-valued instruments to control for selection bias in this setting.
12 December 2024