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Competition, Markups, and Inflation: Evidence from Australian Firm-level Data

Author

Listed:
  • Monique Champion
  • Chris Edmond
  • Jonathan Hambur

Abstract

Do variable profit margins play a substantial role in amplifying inflationary dynamics? Using detailed administrative micro data for Australia we find that: (i) there is some evidence that prices tended to increase by more in industries that had increasing markups over the 2004-2017 period, but (ii) passthrough from cost shocks to prices appears to be incomplete with no statistically significant increase in passthrough in the recent period, and (iii) there is evidence that passthrough is lower in less competitive industries. Viewed through the lens of macroeconomic models with variable markups, these facts are inconsistent with substantial inflation amplification. To generate substantial inflation amplification requires both that average passthrough is higher than is observed in Australian data and that passthrough is higher in less competitive industries. We calibrate a model with variable markups to match key facts from the Australian data. For our benchmark parameterization we find that, if anything, variable markups are predicted to dampen inflation.

Suggested Citation

  • Monique Champion & Chris Edmond & Jonathan Hambur, "undated". "Competition, Markups, and Inflation: Evidence from Australian Firm-level Data," RBA Annual Conference Papers acp2023-05, Reserve Bank of Australia, revised Nov 2023.
    • Handle: RePEc:rba:rbaacp:acp2023-05
    Note: Paper presented at the RBA's annual conference 'Inflation', Sydney, 25–26 September 2023.
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    File URL: https://www.rba.gov.au/publications/confs/2023/pdf/rba-conference-2023-champion-edmond-hambur.pdf
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    References listed on IDEAS

    as
    1. Jonathan Hambur, 2023. "Product Market Competition and its Implications for the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 99(324), pages 32-57, March.
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    More about this item

    Keywords

    inflation; markups; microdata; cost shocks; pass-through; industry concentration; competition;
    All these keywords.

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