Pass-through (economics)

In economics, cost pass-through (also known as price transmission or simply pass-through) is a process (or result) of a business changing pricing of its output (products or services) to reflect a change in costs of its own input (materials, labor, etc.). The effect of passthrough is quantified as passthrough rate, a ratio between the change in costs and the change in prices. Depending on circumstances, a business might choose to absorb part of the cost changes (resulting in ratio below 1.0) or amplify them (ratio above 1.0).

Cost pass-through is extensively used when analyzing the state of competition or evaluating mergers. In the studies of inflation, an opposite direction pass-through from prices to wages is also considered, as well as both occurring together (wage-price spiral).