Cost pass-through in differentiated product markets: a disaggregated study for milk and butter

In food retailing a high degree of price dispersion between and within stores and brands is documented, but variations in the dynamics of prices and its causes have not been analysed in great detail. In this paper, we estimate and explain variations of individual cost pass-through processes for the German dairy market. Results for milk and butter indicate significant positive asymmetries in cost pass-through processes, which vary between brands and outlets. In particular, low-price private labels adjust prices faster than high-price national brands; but cost pass-through is slightly more (positive) asymmetrical for private labels than for national brands.