Double marginalization and cost pass-through: Weyl-Fabinger and Cowan meet Spengler and Bresnahan-Reiss

- The relationship between double marginalization and cost pass-through is studied.
- The ratio of the cost pass-through at the final sale relative to that at the wholesale level is newly characterized.
- Consumer surplus under vertical integration is analyzed by Cowan's (2012) method.

Consider the classical double marginalization problem of single-product successive monopolies. We show that the ratio of the cost pass-through at the final sale relative to that at the wholesale level is characterized by the curvature of inverse demand in the final market. We also apply Cowan's (2012) method, which utilizes the idea of pass-through in an analysis of third-degree price discrimination, to compare consumer surplus under vertical integration and separation.