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

Patrick Alexander, Lu Han, Oleksiy Kryvtsov and Ben Tomlin

No 19419, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: How do market power and nominal price rigidity influence 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 Using unpublished micro data for Canadian wholesale firms, we estimate that idiosyncratic cost pass-through is incomplete and independent of the sector price stickiness, while common cost pass-through declines with price stickiness. The 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 64% in a multi-sector model.

Keywords: Inflation; Oligopolistic competition; Markups; Strategic complementarities (search for similar items in EconPapers)
JEL-codes: D43 E31 L13 L81 (search for similar items in EconPapers)
Date: 2024-09
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Working Paper: Markups and Inflation in Oligopolistic Markets: Evidence from Wholesale Price Data (2024)
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