{"title":"Pass-through and tax incidence in differentiated product markets","authors":"Eugenio J. Miravete , Katja Seim , Jeff Thurk","doi":"10.1016/j.ijindorg.2023.102985","DOIUrl":null,"url":null,"abstract":"<div><p>The role of demand curvature in determining firm behavior in symmetric oligopolistic product markets is well-understood. We consider the empirically relevant discrete choice differentiated product demand and point to two forces that drive curvature in logit demand: the impact of outside-good spending on the consumer’s indirect utility and the heterogeneity in this response across consumers. We use the canonical example of the ready-to-eat cereal market (Nevo, 2000) to contrast elasticity and curvature estimates across several workhorse models. We illustrate that the log-concave Multinomial Logit and Nested Logit demands yield significantly biased curvature estimates. In contrast, a Mixed Logit specification generates a wider range of curvatures, including curvatures larger than one. These results are of immediate relevance to the robust assessment of tax incidence and the pass-through of cost savings, such as from a horizontal merger, in differentiated product markets.</p></div>","PeriodicalId":48127,"journal":{"name":"International Journal of Industrial Organization","volume":"90 ","pages":"Article 102985"},"PeriodicalIF":1.7000,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Journal of Industrial Organization","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0167718723000668","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
The role of demand curvature in determining firm behavior in symmetric oligopolistic product markets is well-understood. We consider the empirically relevant discrete choice differentiated product demand and point to two forces that drive curvature in logit demand: the impact of outside-good spending on the consumer’s indirect utility and the heterogeneity in this response across consumers. We use the canonical example of the ready-to-eat cereal market (Nevo, 2000) to contrast elasticity and curvature estimates across several workhorse models. We illustrate that the log-concave Multinomial Logit and Nested Logit demands yield significantly biased curvature estimates. In contrast, a Mixed Logit specification generates a wider range of curvatures, including curvatures larger than one. These results are of immediate relevance to the robust assessment of tax incidence and the pass-through of cost savings, such as from a horizontal merger, in differentiated product markets.
期刊介绍:
The IJIO is an international venture that aims at full coverage of theoretical and empirical questions in industrial organization. This includes classic questions of strategic behavior and market structure. The journal also seeks to publish articles dealing with technological change, internal organization of firms, regulation, antitrust and productivity analysis. We recognize the need to allow for diversity of perspectives and research styles in industrial organization and we encourage submissions in theoretical work, empirical work, and case studies. The journal will also occasionally publish symposia on topical issues.