Market power amplifies the price effects of demand shocks

Flavio Menezes and John Quiggin

No 653, Discussion Papers Series from University of Queensland, School of Economics

Abstract: In this paper, a model of competition in supply functions is used to analyse the relationship between market power and inflation. The model encompasses a range of market structures with Cournot and Bertand competition as polar cases. To the extent that inflation is driven by demand shocks, firms with market power are likely to respond by increasing margins, and thereby amplifying the inflationary impact of higher demand. This analysis is relevant to debates about the role of market power in recent US inflation.

Date: 2022-10
New Economics Papers: this item is included in nep-com, nep-ind, nep-mac, nep-mon, nep-ore and nep-reg
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:qld:uq2004:653

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