Market structure and cost pass-through in retail. Working Paper

We examine the extent to which vertical and horizontal market structure can together explain incomplete retail pass-through. To answer this question, we use scanner data from a large U.S. retailer to estimate product level pass-through for three different verti-cal structures: national brands, private label goods not manufactured by the retailer and private label goods manufactured by the retailer. Our findings emphasize that account-ing for the interaction of vertical and horizontal structure is important for understanding how market structure affects pass-through, as a reduction in double-marginalization can raise pass-through directly but can also reduce it indirectly by increasing market share. ∗We are greatly indebted to Yuriy Gorodnichenko, Pierre-Olivier Gourinchas, David Romer, Chang-Tai Hsieh and Sofia Villas-Boas for advice, guidance and patience. We also thank Michael Devereux, Peter Christoffersen, Gregor Smith, participants of the Bank of Canada Fellowship Exchange Program, and seminar participants at th