IDEAS home Printed from https://ideas.repec.org/p/cii/cepidt/2023-16.html
   My bibliography  Save this paper

Energy, Inflation and Market Power: Excess Pass-Through in France

Author

Listed:
  • Axelle Arquié
  • Malte Thie

Abstract

We explore how, in the French manufacturing sector, producer prices vary with market power during a severe episode of energy price hikes (between January 2020 and February 2023). Our work provides some empirical evidence in favor of a role for firms' market power in explaining inflation, and in favor of the "sellers' inflation" hypothesis (Weber and Wasner 2023): in less competitive sectors, firms could use the energy price hike to increase their prices more than warranted by actual changes in costs. Using a rich dataset on French manufacturing firms' balance sheets, we first estimate markups at the firm-level, and aggregate them at the sectoral level. We then study the response of the producer price index (PPI) to a change in spot energy prices, depending on average market power within sectors. We show that, in sectors with higher markups, prices increase relatively more: in the least competitive sector, firms pass through up to 110% of the energy shock, implying an excess pass-through of 10 percentage points. In addition, we find that the association between markup and pass-through is even higher when markup dispersion is low, consistent with the argument that firms engage in price hikes when they expect their competitors to do the same.

Suggested Citation

  • Axelle Arquié & Malte Thie, 2023. "Energy, Inflation and Market Power: Excess Pass-Through in France," Working Papers 2023-16, CEPII research center.
    • Handle: RePEc:cii:cepidt:2023-16
    as

    Download full text from publisher

    File URL: http://www.cepii.fr/PDF_PUB/wp/2023/wp2023-16.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-Market, Trade Costs, and International Relative Prices," American Economic Review, American Economic Association, vol. 98(5), pages 1998-2031, December.
    2. Jan De Loecker & Frederic Warzynski, 2012. "Markups and Firm-Level Export Status," American Economic Review, American Economic Association, vol. 102(6), pages 2437-2471, October.
    3. Falk Bräuning & José Fillat & Gustavo Joaquim, 2022. "Cost-Price Relationships in a Concentrated Economy," Current Policy Perspectives 94265, Federal Reserve Bank of Boston.
    4. David Autor & David Dorn & Lawrence F Katz & Christina Patterson & John Van Reenen, 2020. "The Fall of the Labor Share and the Rise of Superstar Firms [“Automation and New Tasks: How Technology Displaces and Reinstates Labor”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 645-709.
    5. Monika Mrázová & J. Peter Neary, 2017. "Not So Demanding: Demand Structure and Firm Behavior," American Economic Review, American Economic Association, vol. 107(12), pages 3835-3874, December.
    6. Daniel A. Ackerberg & Kevin Caves & Garth Frazer, 2015. "Identification Properties of Recent Production Function Estimators," Econometrica, Econometric Society, vol. 83, pages 2411-2451, November.
    7. Jan De Loecker & Jan Eeckhout & Gabriel Unger, 2020. "The Rise of Market Power and the Macroeconomic Implications [“Econometric Tools for Analyzing Market Outcomes”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 561-644.
    8. Chad Syverson, 2019. "Macroeconomics and Market Power: Context, Implications, and Open Questions," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 23-43, Summer.
    9. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2019. "International Shocks, Variable Markups, and Domestic Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(6), pages 2356-2402.
    10. Robert E. Hall, 1986. "Market Structure and Macroeconomic Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 285-338.
    11. Maarten De Ridder & Basile Grassi & Giovanni Morzenti, 2021. "The Hitchhiker’s Guide to Markup Estimation," Working Papers 677, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    12. A. P. Lerner, 1934. "The Concept of Monopoly and the Measurement of Monopoly Power," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 1(3), pages 157-175.
    13. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1415-1464.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Leonardo Ciambezi & Mattia Guerini & Mauro Napoletano & Andrea Roventini, 2023. "Accounting for the Multiple Sources of Inflation: an Agent-Based Model Investigation," GREDEG Working Papers 2023-14, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France, revised Jun 2024.
    2. Etienne de L'Estoile & Mathilde Salin, 2024. "Who Takes the Land? Quantifying the Use of Built-Up Land by French Economic Sectors to Assess Their Vulnerability to the ‘No Net Land Take’ Policy," Working papers 941, Banque de France.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mertens, Matthias & Mottironi, Bernardo, 2023. "Do larger firms exert more market power? Markups and markdowns along the size distribution," LSE Research Online Documents on Economics 121283, London School of Economics and Political Science, LSE Library.
    2. Thomas Hasenzagl & Luis Perez, 2023. "The Micro-Aggregated Profit Share," Papers 2309.12945, arXiv.org, revised Nov 2023.
    3. Panon, Ludovic, 2022. "Labor share, foreign demand and superstar exporters," Journal of International Economics, Elsevier, vol. 139(C).
    4. Díez, Federico J. & Fan, Jiayue & Villegas-Sánchez, Carolina, 2021. "Global declining competition?," Journal of International Economics, Elsevier, vol. 132(C).
    5. Adrián Rodríguez Valle & Esteban Fernández-Vázquez, 2023. "Estimating market power for the European manufacturing industry between 2000 and 2014," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(1), pages 141-172, February.
    6. Ensar Yılmaz & Zeynep Kaplan, 2022. "Heterogeneity of market power: firm-level evidence," Economic Change and Restructuring, Springer, vol. 55(2), pages 1207-1228, May.
    7. repec:hal:wpspec:info:hdl:2441/6q707l4svn8k3bt630nhgdqgdu is not listed on IDEAS
    8. Nick Jacob & Giordano Mion, 2024. "On the productivity advantage of cities," Journal of Economic Geography, Oxford University Press, vol. 24(5), pages 679-705.
    9. Kosuke Aoki & Yoshihiko Hogen & Kosuke Takatomi, 2023. "Price Markups and Wage Setting Behavior of Japanese Firms," Bank of Japan Working Paper Series 23-E-5, Bank of Japan.
    10. Joze Damijan & Jozef Konings & Aigerim Yergabulova, 2020. "Increasing market power in Slovenia: Role of diverging trends between exporters and non‐exporters," The World Economy, Wiley Blackwell, vol. 43(5), pages 1327-1345, May.
    11. Chen Yeh & Claudia Macaluso & Brad Hershbein, 2022. "Monopsony in the US Labor Market," American Economic Review, American Economic Association, vol. 112(7), pages 2099-2138, July.
    12. Sungki Hong, 2019. "Customer Capital, Markup Cyclicality, and Amplification," 2019 Meeting Papers 959, Society for Economic Dynamics.
    13. repec:spo:wpmain:info:hdl:2441/6q707l4svn8k3bt630nhgdqgdu is not listed on IDEAS
    14. Siying Ding & Ahmad Lashkaripour & Volodymyr Lugovskyy, 2024. "A Global Perspective on the Incidence of Monopoly Distortions," CESifo Working Paper Series 11211, CESifo.
    15. Gibbon, Alexandra J. & Schain, Jan Philip, 2023. "Rising markups, common ownership, and technological capacities," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    16. Diane Coyle & John McHale & Ioannis Bournakis & Jen-Chung Mei, 2023. "Recent Trends in Firm-Level Total Factor Productivity in the United Kingdom: New Measures, New Puzzles," Working Papers 036, The Productivity Institute.
    17. Vanessa Alviarez & Keith Head & Thierry Mayer, 2020. "Global giants and local stars: How changes in brand ownership affect competition," Working Papers 2020-13, CEPII research center.
    18. repec:spo:wpecon:info:hdl:2441/6q707l4svn8k3bt630nhgdqgdu is not listed on IDEAS
    19. van Vlokhoven, Has, 2022. "Decomposing the Rise in Markups," Other publications TiSEM 0b616f62-13a7-46f2-b285-9, Tilburg University, School of Economics and Management.
    20. Diane Coyle & John McHale & Ioannis Bournakis & Jen-Chung Mei, 2024. "Converging to Mediocrity: Trends in Firm-Level Markups in the United Kingdom 2008-2019," Working Papers 047, The Productivity Institute.
    21. Pham, Hoang, 2023. "Trade reform, oligopsony, and labor market distortion: Theory and evidence," Journal of International Economics, Elsevier, vol. 144(C).
    22. Jaumandreu, Jordi & Lin, Shuheng, 2018. "Prices under Innovation: Evidence from Manufacturing Firms," CEPR Discussion Papers 13146, C.E.P.R. Discussion Papers.
    23. Nick Jacob & Giordano Mion, 2023. "The UK's Great Demand and Supply Recession," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(5), pages 993-1022, October.

    More about this item

    Keywords

    Inflation ; Markups;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cii:cepidt:2023-16. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/cepiifr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.