Heterogeneous Impacts of Cost Shocks, Strategic Bidding, and Pass-Through: Evidence from the New England Electricity Market

Harim Kim

American Economic Journal: Microeconomics, 2022, vol. 14, issue 2, 370-407

Abstract: Industry-wide shocks can have heterogeneous impacts on firms' costs due to different firm characteristics. The heterogeneity of these impacts is crucial for understanding the pass-through of the shock because of its implications for strategic competition. In the context of the gas price shock in the electricity market, I develop a method to identify the heterogeneous impacts of the shock and show, with a structural analysis, that the heterogeneous feature of the shock induces markup adjustments in firms. Pass-through that is estimated without incorporating the existing heterogeneous impacts fails to reflect the change in competition arising from the shock and is, on average, underestimated.

JEL-codes: D24 L11 L94 L95 L98 Q35 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Heterogeneous Impacts of Cost Shocks, Strategic Bidding and Pass-Through: Evidence From the New England Electricity Market (2018)
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DOI: 10.1257/mic.20190367

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