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

Erich Muehlegger; Richard L. Sweeney

doi:10.1162/rest_a_01052

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

Erich Muehlegger¹; Richard L. Sweeney²

¹ University of California, Davis and NBER · ² Boston College

The Review of Economics and Statistics 2022

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.

DOI: 10.1162/rest_a_01052
Volume: 104 (6)
Pages: 1361-1369
Language: en
Export: BibTeX
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