A General Theory of Pass-Through in Channels with Category Management and Retail Competition

Moorthy, Sridhar
January 2005
Marketing Science;Winter2005, Vol. 24 Issue 1, p110
Academic Journal
I provide a general formulation of the channel pass-through problem as a comparative static of the retail price equilibrium, and I analyze the impact of category management and retail competition on pass-through, focusing on brand and retailer differences, and the nature of the cost change being passed through--whether it is brand specific, retailer specific, both, or neither. With category management, a retailer's response to a brand-specific cost change is not limited to that brand; in general, a retailer will also change the prices of other brands. The cross-brand effect can be positive or negative, and, depending on its sign, it either enhances or attenuates pass-through. I explain the cross-brand effect as an interaction between two forces: a demand-substitution force that pushes for a negative cross-brand effect, and a strategic-complementarity force that pushes for a positive cross-brand effect. Retail competition adds another layer of strategic complementarity, causing other retailers to respond even for retailer-specific cost changes and increasing pass-through of categorywide cost changes. But its effect for brand-specific cost changes is ambiguous. I apply the theory to two commonly used demand functions--linear demand and nested logit--and show that they have significantly different pass-through properties. The paper concludes with a discussion of how the theory relates to the empirical literature, including the companion piece by Besanko et al. (Besanko, D., J-P. Dub&ecute;, S. Gupta. 2005. Own-brand and cross-brand retail pass-through.


Related Articles

  • Cool Concepts.  // License!;Sep2004, Vol. 7 Issue 8, p17 

    The article presents information about the first license signed for HoverDisc by the Overbreak LLC. Already on shelves is Spider-Man, soon to be joined by SpongeBob SquarePants and Orange County Choppers this fall. The HoverDisc is a lightweight disc that inflates to more than 3 feet in diameter...

  • Who Benefits from Store Brand Entry? Pauwels, Koen; Srinivasan, Shuba // Marketing Science;Summer2004, Vol. 23 Issue 3, p364 

    Store brand entry has become a key issue in marketing as it may structurally change the performance of and the interactions among all market players. Based on their multivariate time-series analysis, the authors demonstrate permanent performance effects of store brand entry, typically benefiting...

  • Perfume. Mannell, Rachael // Money (Australia Edition);Jun2005, Issue 5, p47 

    Presents tips on purchasing designer perfumes in an inexpensive way. Range of prices of designer perfumes; Advantages of buying perfumes during holidays; Price of the Stella by Stella McCartney Parfum.

  • Own-Brand and Cross-Brand Retail Pass-Through. Besanko, David; Dub´┐Ż, Jean-Pierre; Gupta, Sachin // Marketing Science;Winter2005, Vol. 24 Issue 1, p123 

    In this paper we describe the pass-through behavior of a major U.S. supermarket chain for 78 products across 11 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...

  • Power to Set Prices: Supreme Court Backs Brands Over Retailers. Clark, Evan; Ellis, Kristi; Casabona, Liza; Beckett, Whitney // WWD: Women's Wear Daily;6/29/2007, Vol. 193 Issue 139, p1 

    The article reports on the impact of the decision of the U.S. Supreme Court to ban minimum pricing agreements among Internet retailers and other discounters on brands. Brands were given the potential to enforce the lowest price at which their products could be sold. The 5-4 ruling could reshape...

  • Standard segments for retail brands. Shaw, Mark; Cresswell, Paul // Journal of Targeting, Measurement & Analysis for Marketing;Aug2002, Vol. 11 Issue 1, p7 

    Anyone responsible for managing and marketing a retail brand can learn a lot simply by classifying the retail chain's outlets into types (segments). The paper describes the development of a set of standard classifications covering all the branches of all major multiple retailers in Great...

  • Join the Club. Thompson, Stephanie; Ueland, John // Brandweek;02/15/99, Vol. 40 Issue 7, p26 

    Focuses on the marketing strategies of retailers of brand name products in the United States. Comments from industry officials; Image advertisings of several companies; Initiative launched by Kraft Foods.

  • Stores Face Less-Stellar '05. Palmieri, Jean E.; Pallay, Jessica; Derby, Meredith // DNR: Daily News Record;1/24/2005, Vol. 35 Issue 4, p14 

    Focuses on the outlook of the U.S. retail trade in 2005 discussed during the National Retail Federation (NRF) convention held in New York in January. Reasons cited for the forecast according to NRF chief economist Rosalind Wells; Significance of brands to a company's success according to Tara...

  • Kangaroo Poo in retail expansion.  // Marketing (00253650);2/5/2005, p14 

    The article states that surfwear brand Kangaroo Poo of Great Britain is to open four stores as the first stage of building a national retail network. The company has only one standalone outlet in Milton Keynes, England. As part of the overhaul, the company will separate its range into four...


Read the Article


Sign out of this library

Other Topics