Cross-Brand Pass-Through and Channel Pricing

Previous works on channel pricing in a symmetric setting routinely assume either linear demand functions or symmetric-at-symmetric prices when analyzing seemingly intractable demands or a general reduced-form demand structure. Through one classic channel structure, the common retailer channel, we demonstrate that such a simplification amounts to assuming zero cross-brand pass-through and may yield misleading implications for channel management. In addition to the well-established vertical strategic effect, we identify an upstream competition effect stemming from the retailer’s various cross-brand pass-through behaviors. We apply this framework to two well-known strategic questions in channel pricing—price leadership and product line pricing—leading to results qualitatively different from the prior literature. Our results have profound implications not only for when prior research conclusions still hold but also for how to determine the optimal channel pricing policy