Pass‐through in a concentrated industry: empirical evidence and regulatory implications

Abstract

We estimate pass‐through with 30 years of data from the portland cement industry. Robust econometric evidence supports that fuel cost changes are more than fully transmitted downstream in the form of price changes. This validates an implicit pass‐through assumption made in recent academic research and regulatory analyses. We combine the econometric results with estimates of competitive conduct obtained from the literature to evaluate the incidence of market‐based CO2 regulation. Producers bear roughly 11% of the regulatory burden and could be compensated with 16% of the revenues obtained.

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