Cost Pass-Through in the U.S. Automobile Market
We study cost pass-through in the U.S. automobile market using a framework that incorporates the effects of cost changes on input decisions. We find that accounting for firms' factor-market decisions significantly increases measured cost pass-through, although we reject the hypothesis of full cost pass-through and constant markups. In addition, our evidence suggests that cost shocks common to all manufacturers have a greater effect on prices than do model-specific cost shocks. Finally, we examine how pass-through varies with manufacturer nationality, finding that U.S. firm cost pass-through exceeds that of European and Asian firms. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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Volume (Year): 82 (2000)
Issue (Month): 2 (May)
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