Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing∗

This paper studies how increases in energy input costs for production are split between consumers and producers via changes in product prices (i.e., pass-through). We show that in markets characterized by imperfect competition, marginal cost pass-through, a demand elasticity, and a price-cost markup are sufficient to characterize the relative change in welfare between producers and consumers due to a change in input costs. We find that increases in energy prices lead to higher plant-level marginal costs and output prices but lower markups. This suggests that marginal cost pass-through is incomplete, with estimates centered around 0.7. Our confidence intervals reject both zero pass-through and complete pass-through. We find heterogeneous incidence of changes in input prices across industries, with consumers bearing a smaller share of the burden than standards methods suggest. JEL: L11, H22, H23, Q40, Q54 ∗We thank Joe Altonji, Ernesto dal Bó, Severin Borenstein, Lucas Davis, David Donaldson, Penny Goldberg, Kostas Metaxoglou, Jim Poterba, Jim Sallee, Glen Weyl, Danny Yagan and various seminar participants for useful comments and discussions. We would also like to thank Randy Becker, Cheryl Grim, and Kirk White for sharing code and data. Jonathan Kadish and Carla Johnston provided excellent research assistance. The research in this paper was conducted while the authors were Special Sworn Status researchers of the U.S. Census Bureau at the Berkeley and Yale Census Research Data Center. Research results and conclusions expressed are those of the authors and do not necessarily reflect the views of the Census Bureau. This paper has been screened to insure that no confidential data are revealed.