Competition, Markups, and Inflation: Evidence from Australian Firm-level Data

Monique Champion, Chris Edmond and Jonathan Hambur

RBA Annual Conference Papers from Reserve Bank of Australia

Abstract: Do variable profit margins play a substantial role in amplifying inflationary dynamics? Using detailed administrative micro data for Australia we find that: (i) there is some evidence that prices tended to increase by more in industries that had increasing markups over the 2004-2017 period, but (ii) passthrough from cost shocks to prices appears to be incomplete with no statistically significant increase in passthrough in the recent period, and (iii) there is evidence that passthrough is lower in less competitive industries. Viewed through the lens of macroeconomic models with variable markups, these facts are inconsistent with substantial inflation amplification. To generate substantial inflation amplification requires both that average passthrough is higher than is observed in Australian data and that passthrough is higher in less competitive industries. We calibrate a model with variable markups to match key facts from the Australian data. For our benchmark parameterization we find that, if anything, variable markups are predicted to dampen inflation.

Keywords: inflation; markups; microdata; cost shocks; pass-through; industry concentration; competition (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-com, nep-ind and nep-mon
Note: Paper presented at the RBA's annual conference 'Inflation', Sydney, 25–26 September 2023.
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.rba.gov.au/publications/confs/2023/pdf ... on-edmond-hambur.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rba:rbaacp:acp2023-05

Access Statistics for this paper

More papers in RBA Annual Conference Papers from Reserve Bank of Australia Contact information at EDIRC.
Bibliographic data for series maintained by Paula Drew ().