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On market power and inflation

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  • St-Pierre, Marc

Abstract

We study the connection between inflation and market power in a partial equilibrium framework with both demand and cost shocks. We derive a specific condition under which cost shocks increase market power. Conversely, when the condition is not satisfied then it is demand shocks that increase market power. Moreover, exogenous changes in the degree of competition can either shrink or amplify the effect of either type shocks on equilibrium price. Our results complement those of Menezes and Quiggin (2022) and further enrich the recurrent debate surrounding the role of market power on inflation.

Suggested Citation

  • St-Pierre, Marc, 2023. "On market power and inflation," Economics Letters, Elsevier, vol. 226(C).
    • Handle: RePEc:eee:ecolet:v:226:y:2023:i:c:s016517652300099x
    DOI: 10.1016/j.econlet.2023.111074
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    References listed on IDEAS

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    8. Flavio M. Menezes & John Quiggin, 2020. "The Strategic Industry Supply Curve," Journal of Industrial Economics, Wiley Blackwell, vol. 68(3), pages 523-555, September.
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    10. Seade, J., 1985. "Profitable Cost Increases and the Shifting of Taxation: Equilibrium Responses of Markets in Oligopoly," Economic Research Papers 269225, University of Warwick - Department of Economics.
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