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Comment—Cross-Brand Pass-Through: Fact or Artifact?

McCombs School of Business, University of Texas at Austin, Austin, Texas 78712
leigh.mcalister{at}mccombs.utexas.edu

Cross-brand pass-through implies that a retailer responds to wholesale promotional support from a target brand by changing the retail prices of competitive brands. Besanko et al. (2005) model a target brand's retail price as a function of its own and other brands' wholesale prices using 780 observations (15 price zones x 52 weeks) and take the many significant coefficients for other brands' wholesale prices that they find as evidence of cross-brand pass-through. Because price zones do not react independently to wholesale prices when they set a brand's retail price, Besanko et al.'s (2005) estimation overstates the number of independent observations by a factor of 15. When we correct for this overstatement of independent observations, we find that the number of stable, significant coefficients for other brands' wholesale prices is lower than one would expect by chance. We conclude that there is no evidence of cross-brand pass-through in the 11 categories analyzed by Besanko et al. (2005).

Key Words: pricing; promotion; retailing and wholesaling; channels of distribution; econometric models; Dominick's; packaged goods; laundry detergent; price zones
History: Received: May 9, 2005;

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