Impact of Vertical Structure and Product Differentiation on Price Pass-through: An Analysis of the Retail Beer Market

By Daniel Martinez, Madhu Viswanathan, Mrinal Ghosh
Productions and Operations Management Society

Citation

Martinez, Daniel., Viswanathan, Madhu., Ghosh, Mrinal. (2022). Impact of Vertical Structure and Product Differentiation on Price Pass-through: An Analysis of the Retail Beer Market Productions and Operations Management Society .

Productions and Operations Management Society, 2022

Abstract

An important question in both marketing and economics is to understand how costs are passed through different vertical structures and different products to final consumers. However, casual identification of these relationships has been problematic. First, the vertical structure of most channels is endogenous to the retail final price observed. Second, commodity cost shocks which are often used to proxy for cost changes are often noisy measures of actual cost changes making it difficult to identify the true effect. Finally, most previous research considers the impact of vertical structure and product differentiation in isolation without considering the combined effect of both. In this research, we investigate the impact of both vertical structure and product differentiation on price passthroughs. Using the retail beer industry in the U.S as context, we leverage differences in regulations across states that mandate different vertical structures along with changes in excise tax to assess the impact on pass-throughs. Using a difference-in-difference strategy, we find that less integrated vertical structures and lower quality products exhibit lower passthroughs and that there are significant interaction effects between vertical structure and product differentiation. We conclude with implications for firms and policy practitioners.

Madhu Viswanathan is Associate Professor of Marketing at the Indian School of Business (ISB) and Executive Director of the Srini Raju Centre for IT and the Networked Economy (SRITNE). His research examines how emerging technologies reshape markets and how firms, platforms, and policymakers can design institutions that foster innovation, trust, and sustainable economic growth.

Working at the intersection of marketing, economics, strategy, and information systems, his research seeks to understand how technological change transforms consumer behaviour, organizational incentives, market design, and public policy. He studies how technologies such as artificial intelligence, digital platforms, creator ecosystems, and data-driven decision systems influence the way markets function and evolve. Across these diverse settings, his work aims to develop insights that help organizations respond to technological change with strategies that are both economically effective and socially meaningful.

His research has been published in leading journals including the Journal of Marketing Research, Marketing Science, and the Journal of Economics & Management Strategy. He serves on the Editorial Review Boards of the Journal of Marketing Research and Production and Operations Management and has been recognized with the Outstanding Reviewer Award from the Journal of Marketing Research.

As Executive Director of SRITNE, Madhu leads the Centre’s research and engagement on artificial intelligence, digital markets, and technology-enabled growth. Under his leadership, SRITNE is building a multidisciplinary research agenda around AI, digital platforms, creator economies, and emerging technologies while strengthening collaborations across academia, industry, startups, and government. His vision is to position the Centre as a leading hub for research that bridges technological innovation with business strategy and public policy.

Alongside his research, he teaches MBA, doctoral, and executive education programmes on growth strategy, digital marketing, artificial intelligence, and technology-enabled business. His teaching combines rigorous research with practical decision frameworks that help managers navigate growth, digital transformation, and strategic decision-making in rapidly evolving markets.

Beyond academia, Madhu serves as an independent director and advisor to technology ventures, working with organizations on growth strategy, platform businesses, AI adoption, digital transformation, and technology-enabled market design. His advisory work reflects his broader commitment to translating rigorous academic research into practical solutions for business leaders, entrepreneurs, and policymakers.

Prior to joining ISB, he was on the faculty at the University of Arizona. He received his PhD in Marketing from the University of Minnesota and his undergraduate degree from BITS Pilani. His work seeks to bridge rigorous academic research with business practice and public policy, helping organizations harness emerging technologies to build more innovative, efficient, and inclusive markets.

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