Abstract
In imperfectly competitive settings, a firm's price depends on its own costs as well as those of its competitors. We demonstrate that this has important implications for the estimation and interpretation of pass-through. Leveraging a large input cost shock resulting from the fracking boom, we isolate price responses to firm-specific, regional, and industry-wide input cost shocks in the U.S. oil refining industry. The pass-through of these components varies from near zero to full pass-through, reconciling seemingly disparate results from the literature. We illustrate the policy implications of rival cost pass-through in the context of a tax on refinery carbon emissions.
© 2021 The President and Fellows of Harvard College and the Massachusetts Institute of Technology
2021
The President and Fellows of Harvard College and the Massachusetts Institute of Technology
You do not currently have access to this content.