The Economics of Pass-Through With Production Constraints
Journal of Competition Law & Economics, 12(2), 279–285
Analysis Group Vice President Dov Rothman, Manager David Toniatti, and Associate Philipp Tillmann have published an article in the Journal of Competition Law & Economics examining the implications of production constraints for the pass-through of cost changes.
In “The Economics of Pass-Through With Production Constraints,” the authors consider production technology that can only be adjusted in discrete intervals and/or is costly to adjust.
They demonstrate that, because of such production constraints, a firm may not pass on small changes in costs to its customers.
The authors suggest that this result has important implications for antitrust litigation – for example, the extent to which overcharges resulting from anticompetitive conduct upstream in the supply chain are passed through to purchasers downstream.