Dr Francesca Arduini is Somerville College’s newly appointed Tutorial Fellow in Economics. A microeconomist by specialism, Dr Arduini was recently inspired by her experience advising on antitrust cases to fill a gap in the existing literature which has contributed to incorrect judgments in multi-million-dollar antitrust cases.
What are focal pricing constraints?
Dr Francesca Arduini at Somerville College
Focal pricing is a widely observed phenomenon, consisting in firms only charging prices with specific characteristics. In practice, focal prices fall into two main classes. The first are prices with 9s in the last digits. These are widespread, and can be explained through models of consumer behaviour where consumers effectively round down prices when making decisions, e.g. due to left-digit bias. The second class are ‘convenient’ prices, which are multiples of certain cash denominations. These are particularly widespread for frequently purchased goods paid in cash in high-traffic transactions. When the non-monetary cost of obtaining exact change is high, it may be optimal for firms to charge only specific prices, for instance either $10 or $11 rather than something in between.
Focal Pricing Constraints and Pass-Through of Input Cost Changes
Courts awarding antitrust damages rely on estimates of cost pass-through to quantify fair compensation. For example, in indirect purchaser class actions it is alleged that the claimants (end-consumers) paid inflated prices for end-products due to abusive conduct by upstream firms (producers of an input). In order to estimate appropriate damages, the court has to estimate the extent to which inflated input costs were passed through to consumers, instead of being absorbed by downstream firms (purchasers of the input and sellers of the end-products).
In multiple high-profile antitrust cases, it has been claimed that the presence of focal pricing in the downstream industry implies there will be very little, if any, pass-through of input cost changes. The argument goes as follows: if downstream firms round to certain special prices, they are unlikely to adjust those prices in response to relatively small input cost changes. This was notably seen when the court struck out the Lithium Ion Batters antitrust litigation.
Challenging the unchecked assumption that focal pricing lowers pass-through rates
Dr Arduini employed a general theoretical framework to prove that focal pricing needn’t lower pass-through rates, and in fact that expected pass-through rates are unaffected by focal pricing in many contexts. This finding has several implications, including on antitrust cases. Dr Arduini argues that the baseless, but widely made, assumption that focal pricing implies little or no pass-through of input costs to consumer prices has contributed to the dismissal of high-profile antitrust cases worth hundreds of millions of dollars.
Speaking about her new paper, Dr Arduini said, “I hope this paper can provide useful evidence to aid the decision-making of antitrust courts, and contribute to awarding fair damages to businesses and consumers who have been harmed by the behaviour of abusive firms.”
Dr Arduini in the Mary Somerville Room, October 2025