Buyer-Size Discounts and Inflation Dynamics
AbstractThis paper considers the macroeconomic effects of retailers’ market concentration and buyer-size discounts on inflation dynamics. During Japan’s “lost decades,” large retailers enhanced their market power, leading to increased exploitation of buyer-size discounts in procuring goods. We incorporate this effect into an otherwise standard New- Keynesian model. Calibrating to the Japanese economy during the lost decades, we find that despite a reduction in procurement cost, strengthened buyer-size discounts did not cause deflation; rather, they caused inflation of 0.1% annually. This arose from an increase in the real wage due to the expansion of production.
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Bibliographic InfoPaper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-04.
Length: 33 pages
Date of creation: Jan 2014
Date of revision:
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Web page: http://cama.crawford.anu.edu.au
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