Retail pass‐through of package downsizing

Abstract

The package downsizing strategy allows a manufacturer to raise unit prices while maintaining package prices in a range acceptable to consumers. The success of the strategy depends on the retailers' ability to transmit the cost of downsized products into consumer prices at higher rates compared to transmitting equivalent increases in the cost of nondownsized products. In this article, we test this hypothesis by empirically analyzing the retailers' pass‐through behavior in response to downsizing. Using data on ice cream purchases, our main finding is that downsizing is significantly associated with the price pass‐through. On average, downsized products' pass‐through rate is 8.4 percentage points higher than the rate for nondownsized products. An important implication of this result is that in competitive environments in which manufacturers prefer to avoid substantial increases in package prices, downsizing could be a win–win strategy for manufacturers and retailers in response to increasing production costs. [EconLit Citations M31, D12, D4].

When cointegration is interrupted: Price transmission analysis in the Italian dairy‐feed industry

“…The vertical dimension of price transmission often represents highly complex relationships with vertical integration processes not visible to the researcher (Adjemian et al, 2016;Lan et al, 2022;von Cramon-Taubadel & Goodwin, 2021). The increasing use of nonlinear models-particularly representing regime changes-provide for the effect of such nonobservable mechanisms, especially under the form of transaction and processing costs, with significant nonlinear price dynamics turning as an indicator for market inefficiencies (Cakir, 2021;Mai et al, 2018). Despite the traditional focus on market power (McCorriston et al, 2001;Yu & Gould, 2019), the PT literature endeavors to offer further economic insights explaining food chains' inefficiencies, like the presence of adjustment costs (Chavas & Mehta, 2004), policy interventions (Brummer et al, 2009;Santeramo & Cioffi, 2012), the degree of perishability and storability of the products concerned (Santeramo, 2015;Santeramo & von Cramon-Taubadel, 2016) or product differentiation (Antonioli et al, 2019;Livat et al, 2019), among others.…”