Market Power And Cost Pass-Through:Theory And Empirical Evidence

Cost pass-through plays a fundamental role in all markets as it has a decisive impact on the resource allocation of market participants.Market power is the core factor that determines the behavior of enterprises and affect market performance,and it is also a big concern of economic research and antitrust regulation.Based on the basic logic of industrial organization theory,this paper introduces market power into the basic framework of the research of cost pass-through,studies the mechanism of market power affecting cost pass-through,and reveals the influence mechanism of cost pass-through under horizontal and vertical market structure and the formation mechanism of asymmetric cost pass-through.This paper is a basic description of the influence of industrial characteristics on cost pass-through under different market structures,and belongs to the basic research of industrial organization theory.The significance of this paper is to enrich the cost pass-through theory in imperfect competition market,enhance the theory's ability to explain practical issues such as upstream and downstream price linkage,tax and subsidy policies,and asymmetric cost pass-through,and play a positive role in the application of anti-monopoly practice in the future.The core content of this paper is to reveal the important influence of market power on cost pass-through in each level of the industrial chain.The research results show that market power influences the cost pass-through rate by adjusting the strategic markup behavior,especially when the cost fluctuations occur in the upstream and downstream bargaining,the market power will affect the markup of all levels in the industry chain,and thus affect the cost pass-through rate.In this paper,the influence of market power on cost pass-through is summarized into the theoretical mechanism of horizontal and vertical market structure,and on this basis gives the theoretical explanation of market power on the asymmetric cost pass-through.In more detail,the study has accomplished the following tasks:(1)The basic attributes of cost pass-through are summarized from practical cases in different fields of economics,and the research problems of this paper are extracted.Firstly,the connotation and extension of the concept of cost pass-through are defined.Secondly,the research results of cost pass-through and influencing factors are systematically sorted out,and the existing research results at home and abroad are reviewed.At the same time,construct the theoretical basis of asymmetry cost pass-through and find out the theoretical entry point of this paper.(2)The basic research framework of market power affecting cost pass-through is constructed.This framework divides market power into horizontal and vertical market structure from the perspective of meso and micro,and analyzes the theoretical mechanism of market power affecting cost pass-through.And constructing a model of market power affecting the asymmetric cost pass-through from two aspects:consumer behavior and corporate behavior.(3)A general analysis model of the market structure affecting the cost pass-through is constructed.Based on the coal-fired power industry in China,the market structure of the power generation industry is used to measure the market power,and the influence of market power of power generation enterprises on coal cost pass-through rate is analyzed.The theoretical model shows that the influence of market power on cost pass-through is related to demand curvature.The empirical analysis shows that the higher the market power of power generation enterprises,the higher the cost pass-through rate.(4)This paper investigated the influence of the upstream market power on the cost pass-through of different level in the industrial chain when the manufacturer do not have complete market power,and made an empirical analysis based on the industrial in China.The theoretical results show that the market power of manufacturers has no influence on the retail cost pass-throug,and the influence on the wholesale cost pass-through is related to the demand curvature.The empirical analysis shows that the market power of manufacturer has a significant negative impact on the cost pass-through,and the buyer power forms a countervailing effect to the market power of upstream enterprises.(5)The formation mechanism of asymmetric cost pass-through is proposed based on corporate behavior and consumer behavior,and an empirical analysis is carried out based on the gasoline retail market in China.The result shows that the phenomenon of "rocket and feather" does exist in China's gasoline retail market,the market power can provide a strong explanation for this phenomenon,and the greater the market power is,the stronger the asymmetry of cost transmission will be.(6)On the basis of theoretical and empirical analysis of the influence of market power on cost pass-through,puts forward the specific application of the conclusion of this paper in the field of industrial organization,such as the estimation of market power,the inference of vertical contract,the merger review and the analysis of platform market.It provides research ideas for anti-monopoly practice and theoretical research in the future.This paper establishes a theoretical connection between market power and cost passthrough,which can enrich the existing research on cost pass-through theory.Through mining the industrial background of the Chinese market can enhance the theoretical nature of the research question.The theoretical and empirical research paradigms formed during the research process can also be applied to other related research on cost passthrough.in order to more fully reveal the general impact mechanism cost pass-through.enrich the cost pass-through theory in industrial organizations,and to provide informative advice for the 'establishment of enterprise strategy and the antitrust policy.