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Sellers’ Inflation, Profits and Conflict: Why can Large Firms Hike Prices in an Emergency?

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dc.contributor.authorWeber, Isabella M
dc.contributor.authorWasner, Evan
dc.contributor.departmentEconomics Department, University of Massachusetts Amherst
dc.contributor.departmentUniversity of Massachusetts Amherst
dc.date2023-10-02T18:48:38.000
dc.date.accessioned2024-04-26T16:31:54Z
dc.date.available2023-02-27T00:00:00Z
dc.date.issued2023-01-01
dc.description.abstractThe dominant view of inflation holds that it is macroeconomic in origin and must always be tackled with macroeconomic tightening. In contrast, we argue that the US COVID-19 inflation is predominantly a sellers’ inflation that derives from microeconomic origins, namely the ability of firms with market power to hike prices. Such firms are price makers, but they only engage in price hikes if they expect their competitors to do the same. This requires an implicit agreement which can be coordinated by sector-wide cost shocks and supply bottlenecks. We review the long-standing literature on price-setting in concentrated markets and survey earnings calls and compile firm-level data to derive a three-stage heuristic of the inflationary process: (1) Rising prices in systemically significant upstream sectors due to commodity market dynamics or bottlenecks create windfall profits and provide an impulse for further price hikes. (2) To protect profit margins from rising costs, downstream sectors propagate, or in cases of temporary monopolies due to bottlenecks, amplify price pressures. (3) Labor responds by trying to fend off real wage declines in the conflict stage. We argue that such sellers’ inflation generates a general price rise which may be transitory, but can also lead to self-sustaining inflationary spirals under certain conditions. Policy should aim to contain price hikes at the impulse stage to prevent inflation from the onset.
dc.identifier.doihttps://doi.org/10.7275/cbv0-gv07
dc.identifier.orcidhttps://orcid.org/0000-0003-0694-8823
dc.identifier.urihttps://hdl.handle.net/20.500.14394/22331
dc.relation.urlhttps://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1348&context=econ_workingpaper&unstamped=1
dc.rightsUMass Amherst Open Access Policy
dc.source.issue2023-2
dc.source.statuspublished
dc.subjectpricing behavior
dc.subjectmarket power
dc.subjectconflict inflation
dc.subjectprofits
dc.subjectmonetary policy
dc.subjectMacroeconomics
dc.subjectPolitical Economy
dc.titleSellers’ Inflation, Profits and Conflict: Why can Large Firms Hike Prices in an Emergency?
dc.typearticle
dc.typearticle
digcom.contributor.authorisAuthorOfPublication|email:imweber@umass.edu|institution:Economics Department, University of Massachusetts Amherst|Weber, Isabella M
digcom.contributor.authorisAuthorOfPublication|email:ewasner@umass.edu|institution:University of Massachusetts Amherst|Wasner, Evan
digcom.date.embargo2023-02-27T00:00:00-08:00
digcom.identifierecon_workingpaper/343
digcom.identifier.contextkey33864166
digcom.identifier.submissionpathecon_workingpaper/343
dspace.entity.typePublication
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