Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing
47 Pages Posted: 19 May 2016 Last revised: 28 May 2016
Date Written: May 18, 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 sufficient 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.
Keywords: Pass-Through, Incidence, Energy Prices, Productivity, Climate Change
JEL Classification: L11, H22, H23, Q40, Q54
Suggested Citation: Suggested Citation