Materials Prices and Productivity

Abstract:     
There is substantial within-industry variation in the prices that plants pay for their material inputs. Using plant-level data from the U.S. Census Bureau, I explore the consequences and sources of this variation in materials prices. For a sample of industries with relatively homogeneous products, the standard deviation of plant-level productivity would be 7% smaller if all plants faced the same materials prices. Moreover, plant-level materials prices are both persistent across time and predictive of exit. The contribution of net entry to aggregate productivity growth is smaller for productivity measures that strip out differences in materials prices. After documenting these patterns, I discuss three potential sources of materials price variation: geography, differences in suppliers' marginal costs, and suppliers' price discriminatory behavior. Together, these variables reduce the unexplained variation of materials prices by 13%. Finally, I demonstrate that plants' marginal costs are correlated with the marginal costs of their intermediate input suppliers.

Number of Pages in PDF File: 70

JEL Classification: L10, O47

working papers series