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Supply Chain Shortages, Large Firms' Market Power, and Inflation

Author

Listed:
  • Francesco A. Franzoni

    (Universita della Svizzera italiana; Swiss Finance Institute; CEPR)

  • Mariassunta Giannetti

    (Stockholm School of Economics; Swedish House of Finance; CEPR; ECGI)

  • Roberto Tubaldi

    (BI Norwegian Business School)

Abstract

We suggest an equilibrium mechanism for the widely debated argument that “greedflation” has fostered widespread price hikes. We construct firm and industry-level measures of supply chain backlogs and delivery delays and provide evidence that supply chain shortages lead to a decrease in competition at the industry level. We show that “star” firms acquire market shares and increase their markups and profitability relative to the smaller firms in the industry. We also show that the large increase in supply chain backlogs during the COVID-19 pandemic can help explain about 19% of the US inflation in industries with more asymmetric firm size distribution, where supply chain shortages are more likely to benefit large firms at the expense of smaller firms. Economic magnitudes are comparable in the international sample.

Suggested Citation

  • Francesco A. Franzoni & Mariassunta Giannetti & Roberto Tubaldi, 2023. "Supply Chain Shortages, Large Firms' Market Power, and Inflation," Swiss Finance Institute Research Paper Series 23-105, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp23105
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    More about this item

    Keywords

    Supply Chains; Market Power; Inflation; Production Networks;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • G3 - Financial Economics - - Corporate Finance and Governance

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