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Buyer-Size Discounts and Inflation Dynamics

  • Mayumi Ojima

    (Bank of Japan)

  • Junnosuke Shino

    (Bank of Japan)

  • Kozo Ueda

    (Waseda University)

This paper considers the macroeconomic effects of retailers' market concentra- tion 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 other- wise standard New-Keynesian model. Calibrating to the Japanese economy during the lost decades, we find that despite a reduction in procurement cost, strength- ened 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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Paper provided by University of Tokyo, Graduate School of Economics in its series UTokyo Price Project Working Paper Series with number 017.

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Length: 32 pages
Date of creation: Jan 2014
Date of revision:
Handle: RePEc:upd:utppwp:017
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