Markups and Inflation in Oligopolistic Markets: Evidence from Wholesale Price Data

Patrick Alexander, Lu Han, Oleksiy Kryvtsov and Ben Tomlin

Staff Working Papers from Bank of Canada

Abstract: We study how the interaction of market power and nominal price rigidity influences inflation dynamics. We formulate a tractable model of oligopolistic competition and sticky prices and derive closed-form expressions for the pass-through of idiosyncratic and common cost shocks to firms’ prices. Using unpublished micro data for Canadian wholesale firms, we estimate that the pass-through of idiosyncratic costs is incomplete at 70% and independent of the degree of sector-price-stickiness. The pass-through of common costs declines with price stickiness, from nearly complete in flexible-price sectors to below 70% in sectors with the stickiest prices. An increase in the degree of sector or firm market power reduces the pass-through of both types of cost shocks. These estimates imply a degree of strategic complementarity that lowers the slope of the New Keynesian Phillips curve by 30% in a one-sector model and by 74% in a multi-sector model.

Keywords: Firm dynamics; Inflation and prices; Market structure and pricing; Monetary policy transmission (search for similar items in EconPapers)
JEL-codes: D43 E31 L13 L81 (search for similar items in EconPapers)
Pages: 82 pages
Date: 2024-05
New Economics Papers: this item is included in nep-com, nep-ind and nep-mon
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Related works:
Working Paper: Markups and Inflation in Oligopolistic Markets: Evidence from Wholesale Price Data (2024)
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