Demand Curvature and Pass-Through in Differentiated Oligopoly

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.

Source: arXiv:2604.21423v1 - http://arxiv.org/abs/2604.21423v1 PDF: https://arxiv.org/pdf/2604.21423v1 Original Link: http://arxiv.org/abs/2604.21423v1