COST PASS-THROUGH IN DIFFERENTIATED PRODUCT MARKETS: A DISAGGREGATED STUDY FOR MILK AND BUTTER

In food retailing a high degree of static price dispersion between and within stores and between brands has been documented, but at the brand and/or retail outlet level the dynamic behaviour of prices, as well as its causes, have not been analysed in the European food market context. In this paper we estimate the dynamic pricing behaviour of brands at various retail outlets to identify the role of private (low-price brands) and national (high-price brands) labels to explain the dispersion of retail price dynamics. The results indicate significant asymmetries in cost pass-through processes, which vary between brands and outlets. In particular, private labels (low-price brands) adjust prices faster than national labels (high-price brands). Moreover, cost pass-through is slightly more (positive) asymmetrical for private labels than for high-price national brands.