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on Industrial Organization |
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Issue of 2019‒01‒21
five papers chosen by |
| By: | Cédric Duprez; Glenn Magerman |
| Abstract: | Firms do not completely pass through their cost shocks onto output prices, generating variable markups that attenuate price movements across firms. While the impact of partial cost shocks such as exchange rate volatility are well-documented, much less is known about general cost pass-through at the micro level, and its implications for aggregate outcomes such as inflation. We develop a non-parametric framework of how producers update prices. Our structural elasticities allow for heterogeneity in price changes and the relationship between buyers and suppliers in a production network. 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 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. Next, we study the propagation and aggregation properties of incomplete pass-through. A shock of 10% to firms’ import prices generates a change in the producer price index of only 2.5%, reducing the initial cost shock by 75%, or less than half of what is predicted by models with complete pass-through. This result might provide an alternative explanation to the exchange rate disconnect puzzle under flexible prices. |
| Keywords: | Pricing, production networks, pass-through, variable markups |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/280990&r=all |
| By: | Daniel Levy (Bar-Ilan University) |
| Abstract: | We document an asymmetry in the rigidity of 9-ending prices relative to non-9-ending prices. Consumers have difficulty noticing higher prices if they are 9-ending, or noticing price-increases if the new prices are 9-ending, because 9-endings are used as a signal for low prices. Price setters respond strategically to the consumer-heuristic by setting 9-ending prices more often after price-increases than after price-decreases. 9-ending prices, therefore, remain 9-ending more often after price-increases than after price-decreases, leading to asymmetric rigidity: 9-ending prices are more rigid upward than downward. These findings hold for both transaction-prices and regular-prices, and for both inflation and no-inflation periods. |
| Keywords: | Asymmetric Price Adjustment, Sticky/Rigid Prices, 9-Ending Prices, Psychological Prices, Price Points, Regular/Sale Prices |
| JEL: | E31 L16 C91 C93 D80 M31 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2019-01&r=all |
| By: | Matej Bajgar; Giuseppe Berlingieri; Sara Calligaris; Chiara Criscuolo; Jonathan Timmis |
| Abstract: | This report presents new evidence on industry concentration trends in Europe and in North America. It uses two novel data sources: representative firm-level concentration measures from the OECD MultiProd project, and business-group-level concentration measures using matched Orbis-Worldscope-Zephyr data. Based on the MultiProd data, it finds that between 2001 and 2012 the average industry across 10 European economies saw a 2-3-percentage-point increase in the share of the 10% largest companies in industry sales. Using the Orbis-Worldscope-Zephyr data, it documents a clear increase in industry concentration in Europe as well as in North America between 2000 and 2014 of the order of 4-8 percentage points for the average industry. Over the period, about 3 out of 4 (2-digit) industries in each region saw their concentration increase. The increase is observed for both manufacturing and non-financial services and is not driven by digital-intensive sectors. |
| Keywords: | business dynamics, Industry concentration, measurement |
| JEL: | D4 L11 L25 |
| Date: | 2019–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaac:18-en&r=all |
| By: | Hiroaki Ino (School of Economics, Kwansei Gakuin University); Norimichi Matsueda (School of Economics, Kwansei Gakuin University); Jun'ichi Miki (Faculty of Humanities and Social Sciences, Tohoku University of Community Service and Science) |
| Abstract: | It is reported previously that, in contracting out waste collection services to pri- vate enterprises, there is generally an inverse relationship between the contracting- out rate and the contract price, but this inverse relationship levels out as the degree of contracting-out increases and the contract price even goes up eventually as the contracting rate approaches 100%. In this paper, we construct a simple bargain- ing model between municipal governments and private rms and identify how the bargaining equilibrium differs from an outcome where municipal governments can make take-it-or-leave-it offers to private enterprises. Through a simple simulation analysis, in addition, we demonstrate that hold-up concerns of local governments can indeed lead to a U-shaped relationship between the contracting-out rate and the contract price across different municipalities. |
| Keywords: | bargaining, contracting-out, contract price, hold-up, waste collection |
| JEL: | H42 L33 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:186&r=all |
| By: | Emmanuel Dhyne; Glenn Magerman; Ayumu Ken kikkawa |
| Abstract: | This paper studies the implications of imperfect competition in firm-to-firm trade. Using a dataset on all transactions between Belgian firms, we find that firms charge higher markups if they have higher input shares among their buyers. We build a model where firms charge different markups to buyers depending on the input shares they have in each buyer. The estimated model suggests large distortions due to double marginalization: Reducing all markups in firm-to-firm also highlight the importance of accounting for endogeneities in firm-to-firm markups in predicting the effects of shock transmissions. |
| Keywords: | Competition, Firm-to-Firm Trade |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/280981&r=all |