Harvard Business School Working Paper, No. 25-009
We study markups and pricing strategies along the supply chain. Our unique dataset combines detailed price and cost information from a large global manufacturer with matched retail prices collected online for the period July 2018 through June 2023. We show that total markups—reflecting the difference between retail prices and production costs—are stable over time, despite the inflationary period at the end of the sample. Along the supply chain, manufacturer and retail markups are negatively correlated. For the most part, we find similar patterns across countries, though there is substantial heterogeneity in the split of markups between the manufacturer and retailers. We propose a model of supply chain pricing behavior that rationalizes key patterns in our data, and we use the model to quantify factors that determine relative bargaining power between the manufacturer and retailers. Finally, we consider the dynamics of cost pass-through. The manufacturer adjusts prices in response to cost shocks more quickly than retailers and appears to more fully incorporate idiosyncratic cost shocks to specific products. Differential pass-through patterns along the supply chain can arise from bargaining power that adjusts dynamically in response to shocks.
