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Pass-Through of Own and Rival Cost Shocks: Evidence from the U.S. Fracking Boom

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  • Erich Muehlegger

    (University of California, Davis and NBER)

  • Richard L. Sweeney

    (Boston College)

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.

Suggested Citation

  • Erich Muehlegger & Richard L. Sweeney, 2022. "Pass-Through of Own and Rival Cost Shocks: Evidence from the U.S. Fracking Boom," The Review of Economics and Statistics, MIT Press, vol. 104(6), pages 1361-1369, November.
    • Handle: RePEc:tpr:restat:v:104:y:2022:i:6:p:1361-1369
    DOI: 10.1162/rest_a_01052
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    Cited by:

    1. Ellalee, Haider & Alali, Walid Y., 2022. "A Welfare and Pass-Through Effects of Regulations within Imperfect Competition," MPRA Paper 116512, University Library of Munich, Germany.
    2. Kilian, Lutz & Zhou, Xiaoqing, 2024. "Heterogeneity in the pass-through from oil to gasoline prices: A new instrument for estimating the price elasticity of gasoline demand," Journal of Public Economics, Elsevier, vol. 232(C).
    3. Galloway, Tracey & Li, Nicholas, 2023. "Pass-through of subsidies to prices under limited competition: Evidence from Canada’s Nutrition North program," Journal of Public Economics, Elsevier, vol. 225(C).
    4. Juan Esteban Carranza & Alejandra González-Ramírez & Alex Perez & Juan Sebastián Vélez-Velásquez, 2024. "Exchange rate pass-through in the Colombian car market," International Economics and Economic Policy, Springer, vol. 21(1), pages 151-179, February.
    5. Carl Hase & Johannes Kasinger, 2024. "The Pass-through of Retail Crime," Papers 2407.07201, arXiv.org, revised Oct 2024.

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