Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing

47 Pages Posted: 25 May 2016

See all articles by Sharat Ganapati

Sharat Ganapati

Georgetown University

Joseph S. Shapiro

University of California, Berkeley; National Bureau of Economic Research (NBER)

Reed Walker

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Date Written: May 1, 2016

Abstract

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 standard methods suggest.

JEL Classification: L11, H22, H23, Q40, Q54

Suggested Citation

Ganapati, Sharat and Shapiro, Joseph S. and Walker, Reed, Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing (May 1, 2016). US Census Bureau Center for Economic Studies Paper No. CES-WP-16-27, Available at SSRN: https://ssrn.com/abstract=2783473 or http://dx.doi.org/10.2139/ssrn.2783473

Sharat Ganapati (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States

Joseph S. Shapiro

University of California, Berkeley ( email )

HOME PAGE: http://joseph-s-shapiro.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Reed Walker

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building
Berkeley, CA 94720
United States

HOME PAGE: http://faculty.haas.berkeley.edu/rwalker/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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