Demand Curvature and Pass-Through in Differentiated Oligopoly

TL;DR

This paper develops a framework to analyze how demand curvature, substitution, and ownership influence cost pass-through in differentiated-product oligopoly, extending classic monopoly insights to multiproduct markets.

Contribution

It introduces a general pass-through matrix representation and a tractable approximation for empirical demand systems in multiproduct oligopoly settings.

Findings

Decomposition of equilibrium price responses into demand curvature, substitution, and ownership effects.

A first-order approximation providing a practical empirical characterization.

Analysis of the small-share limit and restrictions imposed by common demand specifications.

Abstract

This paper studies cost pass-through in differentiated-product oligopoly. I derive a general representation of the pass-through matrix that decomposes equilibrium price responses into the roles of demand curvature, substitution, and multiproduct ownership. This extends the classic insight in single-product monopoly to multiproduct settings in which diversion and ownership also matter. I then develop a tractable first-order approximation that yields a sufficient-statistics characterization for empirically relevant demand systems. Finally, I characterize the small-share limit and show how common demand specifications impose tail restrictions that shape pass-through. The results provide a practical framework for applied work on tax incidence, merger analysis, and related questions in imperfect competition.