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Market Power And The Cross-Industry Behavior Of Prices Around A Business Cycle Trough, Jonathan Baker, Peter Woodward

Working Papers

Our paper examines the behavior of prices in a large number of highly-disaggregate industries around the trough of the business cycle. We conclude that the degree to which prices are pro- or counter-cyclical differs between business cycle peaks and business cycle troughs, and that the cyclical behavior of prices varies substantially across industries. We also observe a tendency for industry prices to rise immediately following a business cycle trough. In general, we accept a market power explanation for that observation: either oligopolists pricing above marginal cost take advantage of a cyclical tendency for demand functions to grow more inelastic in …