Working Paper: CEPR ID: DP18574
Authors: Francesco Franzoni; Mariassunta Giannetti; Roberto Tubaldi
Abstract: We suggest an equilibrium mechanism for the widely debated argument that “greedflation” has fostered widespread price hikes. We construct firm and industry-level measures of supply chain backlogs and delivery delays and provide evidence that supply chain shortages lead to a decrease in competition at the industry level. We show that “star” firms acquire market shares and increase their markups and profitability relative to the smaller firms in the industry. We also show that the large increase in supply chain backlogs during the COVID-19 pandemic can help explain about 19% of the US inflation in industries with more asymmetric firm size distribution, where supply chain shortages are more likely to benefit large firms at the expense of smaller firms. Economic magnitudes are comparable in the international sample.
Keywords: inflation
JEL Codes: E31; L11; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| supply chain shortages (M11) | decreased competition (L49) |
| decreased competition (L49) | increased market power for large firms (superstars) (L11) |
| supply chain shortages (M11) | increased market power for large firms (superstars) (L11) |
| supply chain shortages (M11) | increase in market share for superstar firms (L25) |
| supply chain shortages (M11) | increase in profitability for superstar firms (L25) |
| preferential treatment from suppliers (L14) | increased market power for large firms (superstars) (L11) |
| operational resilience of large firms (L25) | increased market power for large firms (superstars) (L11) |