Publication Date: May 2016
This paper studies how increases in energy input costs for production are split between consumers and producers via changes in product prices (i.e., pass-through). We show that in markets characterized by imperfect competition, marginal cost pass-through, a demand elasticity, and a price-cost markup are sucient to characterize the relative change in welfare between producers and consumers due to a change in input costs. We ﬁnd that increases in energy prices lead to higher plant-level marginal costs and output prices but lower markups. This suggests that marginal cost pass-through is incomplete, with estimates centered around 0.7. Our conﬁdence intervals reject both zero pass-through and complete pass-through. We ﬁnd heterogeneous incidence of changes in input prices across industries, with consumers bearing a smaller share of the burden than standards methods suggest.
Pass-through, incidence, energy prices, productivity, climate change
JEL Classification Codes: L11, H22, H23, Q40, Q54