Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/262032 
Year of Publication: 
2021
Series/Report no.: 
IFN Working Paper No. 1418
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
In this paper, we study a new channel to explain firms' price setting behavior. We propose that uncertainty about factor prices has a positive effect on markups. We show theoretically that firms with higher shares of inputs with volatile prices set higher markups. We use the Bartik shift-share approach to empirically test whether firms which use more oil relative to other inputs set higher markups when oil prices are more volatile. Our estimates imply that a one standard deviation increase in oil price volatility leads to a 0.38 percent increase in the markup of firms with average oil exposure.
Subjects: 
price setting
markups
input price volatility
precautionary pricing
JEL: 
D21
D22
D24
D42
D80
E31
E32
L11
L60
Document Type: 
Working Paper

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