IDEAS home Printed from https://ideas.repec.org/p/nbb/reswpp/201810-352.html
   My bibliography  Save this paper

Price Updating in Production Networks

Author

Listed:
  • Cedric Duprez

    () (National Bank of Belgium, Economics and Research Department)

  • Glenn Magerman

    (National Bank of Belgium, Economics and Research Department)

Abstract

This paper evaluates how firms change their prices in response to cost shocks and other price changes in their environment. We first document three new facts on the heterogeneity of firm-level producer prices and their relationship to buyers and suppliers in a production network. We then develop a non-parametric framework of how producers update their prices, taking into account this production network. The framework is very general, and accounts for the heterogeneity in price changes and the production network from the stylized facts. Moreover, the framework is consistent with various price setting mechanisms, and does not impose a particular market structure or demand functional form. Exploiting rich data on producer prices and the network structure of production in Belgium, we estimate the model to evaluate the importance of both channels in the data. We find that, on average, input price pass-through is incomplete and very much below one, while firms also strongly react to other prices in their environment. This implies that firms can adjust their markups in response to both cost shocks and prices of other firms. Furthermore, firms react differently to common shocks than to idiosyncratic shocks, on average completely passing through common shocks, but much less idiosyncratic shocks

Suggested Citation

  • Cedric Duprez & Glenn Magerman, 2018. "Price Updating in Production Networks," Working Paper Research 352, National Bank of Belgium.
  • Handle: RePEc:nbb:reswpp:201810-352
    as

    Download full text from publisher

    File URL: https://www.nbb.be/doc/oc/repec/reswpp/wp352en.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2014. "Importers, Exporters, and Exchange Rate Disconnect," American Economic Review, American Economic Association, vol. 104(7), pages 1942-1978, July.
    2. 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.
    3. Emi Nakamura & Dawit Zerom, 2010. "Accounting for Incomplete Pass-Through," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1192-1230.
    4. 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.
    5. Jan De Loecker & Pinelopi K. Goldberg & Amit K. Khandelwal & Nina Pavcnik, 2016. "Prices, Markups, and Trade Reform," Econometrica, Econometric Society, vol. 84, pages 445-510, March.
    6. Natalia Fabra & Mar Reguant, 2014. "Pass-Through of Emissions Costs in Electricity Markets," American Economic Review, American Economic Association, vol. 104(9), pages 2872-2899, September.
    7. Chris Edmond & Virgiliu Midrigan & Daniel Yi Xu, 2015. "Competition, Markups, and the Gains from International Trade," American Economic Review, American Economic Association, vol. 105(10), pages 3183-3221, October.
    8. Atkin, David & Donaldson, Dave, 2015. "Who’s Getting Globalized? The Size and Implications of Intra-national Trade Costs," CEPR Discussion Papers 10759, C.E.P.R. Discussion Papers.
    9. Aucremanne, Luc & Dhyne, Emmanuel, 2004. "How frequently do prices change? Evidence based on the micro data underlying the Belgian CPI," Working Paper Series 331, European Central Bank.
    10. David Rezza Baqaee & Emmanuel Farhi, 2017. "Productivity and Misallocation in General Equilibrium," NBER Working Papers 24007, National Bureau of Economic Research, Inc.
    11. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 985-985.
    12. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 295-316.
    13. Pinelopi Koujianou Goldberg & Frank Verboven, 2001. "The Evolution of Price Dispersion in the European Car Market," Review of Economic Studies, Oxford University Press, vol. 68(4), pages 811-848.
    14. Daniel A. Ackerberg & Kevin Caves & Garth Frazer, 2015. "Identification Properties of Recent Production Function Estimators," Econometrica, Econometric Society, vol. 83, pages 2411-2451, November.
    15. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    16. Pinelopi Koujianou Goldberg & Rebecca Hellerstein, 2013. "A Structural Approach to Identifying the Sources of Local Currency Price Stability," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 175-210.
    17. Emmanuel Dhyne & Glenn Magerman & Ayumu Ken kikkawa, 2019. "Imperfect Competition in Firm-to-Firm Trade," Working Papers ECARES 2019-05, ULB -- Universite Libre de Bruxelles.
    18. Glenn Magerman & Emmanuel Dhyne & Stela Rubínova, 2015. "The Belgian production network 2002-2012," Working Paper Research 288, National Bank of Belgium.
    19. Glenn Magerman & Karolien De Bruyne & Emmanuel Dhyne & Jan Van Hove, 2016. "Heterogeneous firms and the micro origins of aggregate fluctuations," Working Paper Research 312, National Bank of Belgium.
    20. Heise, Sebastian, 2019. "Firm-to-Firm Relationships and the Pass-Through of Shocks: Theory and Evidence," Staff Reports 896, Federal Reserve Bank of New York.
    21. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    22. Basile Grassi, 2018. "IO in I-O: Size, Industrial Organization, and the Input-Output NetworkMake a Firm Structurally Important," Working Papers 619, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    23. Martin Eichenbaum & Nir Jaimovich & Sergio Rebelo, 2011. "Reference Prices, Costs, and Nominal Rigidities," American Economic Review, American Economic Association, vol. 101(1), pages 234-262, February.
    24. Fernando Alvarez & Hervé Le Bihan & Francesco Lippi, 2016. "The Real Effects of Monetary Shocks in Sticky Price Models: A Sufficient Statistic Approach," American Economic Review, American Economic Association, vol. 106(10), pages 2817-2851, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Pricing; production networks; pass-through; variable markups;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

    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:nbb:reswpp:201810-352. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/bnbgvbe.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.