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

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January 2016

Written by: Reed Walker, Joseph S. Shapiro, Sharat Ganapati

Working Paper Number:

CES-16-27

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 suffcient to characterize the relative change in welfare between producers and consumers due to a change in input costs. We and 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 and heterogeneous incidence of changes in input prices across industries, with consumers bearing a smaller share of the burden than standards methods suggest.

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Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

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demand, market, economist, econometric, cost, commodity, price, monopolistic, expenditure, regulation, pricing, consumption, econometrician, emission, energy prices, consumer, rate, utility, electricity prices

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Annual Survey of Manufactures, National Science Foundation, Ordinary Least Squares, Total Factor Productivity, National Bureau of Economic Research, Cobb-Douglas, Energy Information Administration, Department of Energy, Manufacturing Energy Consumption Survey, Environmental Protection Agency, Special Sworn Status, State Energy Data System

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