doi 10.1287/mksc.1030.0043 ©2005 INFORMS Own-Brand and Cross-Brand Retail Pass-Through

In this paper we describe the pass-through behavior of a major U.S. supermarket chain for 78 products across11 categories. Our data set includes retail prices and wholesale prices for stores in 15 retail price zones for a one-year period. For the empirical model, we use a reduced-form approach that focuses directly on equilibrium prices as a function of exogenous supply- and demand-shifting variables. The reduced-form approach enables us to identify the theoretical pass-through rate without specific assumptions about the form of consumer demand or the conduct of a category-pricing manager. Thus, our measurements of pass-through are not constrained by specific structure on the underlying economic model. The empirical pricing model includes costs of all competing products in the category on the right-hand side (not only the cost of the focal brand) and yields estimates of both own-brand and cross-brand pass-through rates. Our results provide a rich picture of the retailer’s pass-through behavior. We find that pass-through varies substantially across products and across categories. Own-brand pass-through rates are, on average, more than 60 % for 9 of 11 categories, a finding that is at odds with the claims of manufacturers about retailers in general. Importantly, we find substantial evidence of cross-brand pass-through effects, indicating that retail prices of competing products are adjusted in response to a change in the wholesale price of any given product in the category. We find that cross-brand pass-through rates are both positive and negative. We explore determinants of own-brand and cross-brand pass-through rates and find strong evidence in multiple categories of asymmetri