skip to content

Faculty of Economics

Journal Cover

Ritz, R.

Does Competition Increase Pass-Through?

RAND Journal of Economics

Vol. 55(1) pp. 140-165 (2024)

Abstract: How does market power affect the rate of pass-through from marginal cost to the market price? A standard intuition is that more competition makes prices more “cost-reflective” and thus raises cost pass-through. This paper shows that this intuition is sensitive to the common assumption in the literature that firms’ marginal costs are constant. If firms have even modestly increasing marginal costs, more intense competition actually reduces pass through. These results apply to the “normal” case where pass-through is less than 100%. They have implications for competition policy and environmental regulation.

Keywords: Cost pass-through, imperfect competition, perfect competition, production technology

JEL Codes: D24, D41, D42, D43

Author links: Robert Ritz  

Publisher's Link:

Cambridge Working Paper in Economics Version of Paper: Does competition increase pass-through?, Ritz, R., (2019)

Papers and Publications

Recent Publications

Porzio, T., Rossi, F. and Santangelo, G. The Human Side of Structural Transformation American Economic Review [2022]

Merrick Li, Z. and Linton, O. A ReMeDI for Microstructure Noise Econometrica [2022]

Bhattacharya, D. and Komarova, T. Incorporating Social Welfare in Program-Evaluation and Treatment Choice Review of Economics and Statistics, accepted [2024]

Gallo, E. and Yan, C. Efficiency and Equilibrium in Network Games: An Experiment Review of Economics and Statistics [2023]