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Drawing on uncommonly rich and representative data from the Colombian manufacturing census, this paper documents new empirical relationships between input prices, output prices, and plant size and proposes a model of endogenous input and output quality choices by heterogeneous firms to explain the observed patterns. The key empirical facts are that, on average within narrowly defined sectors, (1) larger plants charge more for their outputs and (2) larger plants pay more for their material inputs. The latter fact generalizes the well-known positive correlation between plant size and wages. Similar correlations hold between prices and export status. We show that the empirical patterns are consistent with a parsimonious extension of the Melitz (2003, \"The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,\" Econometrica, 71, 1695-1725) framework to include endogenous choice of input and output quality. Using a measure of the scope for quality differentiation from Sutton (1998, Technology and Market Structure: Theory and History. Cambridge: MIT Press), we show that differences across sectors in the relationships between prices and plant size are consistent with our model. Available evidence suggests that differences in observable measures of market power do not provide a complete explanation for the empirical patterns. We interpret the results as supportive of the hypothesis that quality differences of both inputs and outputs play an important role in generating the price-plant size correlations.

We present a model that explains the relationship between low input prices, high exit rates, and industrial concentration. We argue that falling input prices force less productive firms to exit the market, and lead to the expansion of more efficient incumbents at the expense of less productive producers. Our model helps reconcile some well-established empirical results regarding the food processing industry. Indeed, agricultural prices fell between the early 1900s and 2006, and over the same period there was a trend towards higher concentration in the food industry, with an increase in average productivity.

We try to examine the potential of input–output price model to identify mechanisms of price formation and transmission. Contrary to previous research that focused on overcoming the specific limitations of the model, we test its overall performance. In the presented study, the historical values of the commonly used consumer price index were decomposed according to the classic input–output price model for an open economy. A sequence of ex post simulations under various assumptions was used to identify the sources of inflation. This study required the use of input–output tables in current and previous year’s prices. The proposed method of decomposition might be a starting point to create a framework for studying different aspects of inflation process.

This paper examines some of the recent literature on the estimation of production functions. We focus on techniques suggested in two recent papers, Olley and Pakes (1996) and Levinsohn and Petrin (2003). While there are some solid and intuitive identification ideas in these papers, we argue that the techniques can suffer from functional dependence problems. We suggest an alternative approach that is based on the ideas in these papers, but does not suffer from the functional dependence problems and produces consistent estimates under alternative data generating processes for which the original procedures do not.

New goods play a central role in many trade and growth models. We use detailed trade and firm-level data from India to investigate the relationship between declines in trade costs, imports of intermediate inputs, and domestic firm product scope. We estimate substantial gains from trade through access to new imported inputs. Moreover, we find that lower input tariffs account on average for 31% of the new products introduced by domestic firms. This effect is driven to a large extent by increased firm access to new input varieties that were unavailable prior to the trade liberalization.

This paper examines the welfare effect of third-degree price discrimination in a vertically related market with one upstream monopolist that sells its input to a continuum of downstream markets. Assume that the market boundary of the monopolist is endogenously determined. It is found that social welfare is necessarily lower under discriminatory than uniform pricing, even if the market area of the former is greater than that of the latter. This finding is contrary to that in the extant literature on price discrimination in final goods markets.

In this paper, we empirically investigate whether trade liberalization affects markup dispersion, a potential source of resource misallocation. The identification uses China's WTO accession at the end of 2001. We show that trade liberalization reduces markup dispersion within a narrowly defined industry. We also examine both price and cost responses to trade liberalization, as well as heterogeneous effects across firms and across locations. Our study contributes to the literature by identifying another potential channel through which free trade benefits a nation.

We measure the impact of a drastic new technology for producing steel—the minimill—on industry-wide productivity in the US steel industry, using unique plant-level data between 1963 and 2002. The sharp increase in the industry's productivity is linked to this new technology through two distinct mechanisms: (i) the mere displacement of the older technology (vertically integrated producers) was responsible for a third of the increase in the industry's productivity, and (ii) increased competition, due the minimill expansion, drove a productivity resurgence at the surviving vertical integrated producers and, consequently, the productivity of the industry as a whole.

The Panzar-Rosse test has been widely applied to assess competitive conduct, often in specifications controlling for firm scale or using a price equation. We show that neither a price equation nor a scaled revenue function yields a valid measure for competitive conduct. Moreover, even an unscaled revenue function generally requires additional information about costs and market equilibrium to infer the degree of competition. Our theoretical findings are confirmed by an empirical analysis of competition in banking, using a sample containing more than 100,000 bank-year observations on more than 17,000 banks in 63 countries during the years 1994 to 2004.

New animal welfare policies on the horizon in many U.S. states have prompted debates about the cost of achieving happier hens and hogs. A recent policy change in California offers a unique opportunity to measure the economic repercussions of minimum space requirements for egg-laying hens. Using forecasting methods and structural break tests as applied to sixteen years of monthly data on egg production and input prices, we find that by July 2016, both egg production and the number of egg-laying hens were about 35% lower than they would have been in the absence of the new regulations. Out-of-state eggs were able to compensate for falling California production until around the time the new rules were implemented, at which point imports of eggs into California fell. For consumers, we estimate price impacts using panel structural break tests and difference-in-differences models as applied to five years of scanner data from the retail market for shell eggs in three California markets and three control markets. We find that the average price paid per dozen eggs was about 22% higher from December 2014 through September 2016 than it would have been in the absence of the hen housing restrictions. The price impact fell over time, from an initial impact of about 33% per dozen to about 9% over the last six months of the observed time horizon. These price increases correspond to welfare losses of at least $117 million for the three California markets over the observed time horizon. Our results suggest that because of the policy change, California consumers can expect to experience annual welfare losses of at least $25 million in future years from higher retail egg prices alone.