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Markups and Inflation in Oligopolistic Markets: Evidence from Wholesale Price Data

Author

Listed:
  • Alexander, Patrick
  • Han, Lu
  • Kryvtsov, Oleksiy
  • Tomlin, Ben

Abstract

How do market power and nominal price rigidity influence inflation dynamics? We formulate a tractable model of oligopolistic competition and sticky prices, and derive closed-form expressions for the pass-through of idiosyncratic and common cost shocks to firms' prices. Using unpublished micro data for Canadian wholesale firms, we estimate that idiosyncratic cost pass-through is incomplete and independent of the sector price stickiness, while common cost pass-through declines with price stickiness. The estimates imply a degree of strategic complementarity that lowers the slope of the New Keynesian Phillips curve by 30% in a one-sector model and by 64% in a multi-sector model.

Suggested Citation

  • Alexander, Patrick & Han, Lu & Kryvtsov, Oleksiy & Tomlin, Ben, 2024. "Markups and Inflation in Oligopolistic Markets: Evidence from Wholesale Price Data," CEPR Discussion Papers 19419, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19419
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    More about this item

    Keywords

    Inflation; Oligopolistic competition; Markups; Strategic complementarities;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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