Document Type
Article
Publication Date
December 1998
Abstract
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 the early stages of a boom or else interfirm coordination becomes more effective after a trough. From the behavior of prices as a recession ends and a boom begins, our paper also identifies a set of industries likely on average to be exercising market power.
Recommended Citation
Baker, Jonathan and Woodward, Peter, "Market power and the cross-industry behavior of prices around a business cycle trough" (1998). Working Papers. 50.
https://digitalcommons.wcl.american.edu/fac_works_papers/50