Cost pass-through and inverse demand curvature in vertical relationships with upstream and downstream competition

Abstract

This paper provides two characterizations of the retailer’s markup relative to the manufacturer’s markup in vertical relationships with homogeneous manufacturers and homogeneous retailers. We first show that retailer’s relative markup is equal to the ratio of the retail pass-through to the wholesale pass-through, multiplied by the number of manufacturers relative to the number of retailers. We then provide its expression in terms of the inverse demand curvature.