Markups and Cost Pass-through Along the Supply Chain
We use a novel dataset of production costs, wholesale prices, and retail prices from a large global manufacturer to study markups and pricing behavior along the supply chain. We document new facts about the distribution and dynamics of markups, and we propose a model of supply-chain pricing behavior that rationalizes key patterns in our data. We find substantial dispersion in markups across products and negative correlations between manufacturer and retail markups in the cross section and over time. Despite time-series variation in markups at each stage, total markups—reflecting the relationship between retail prices and production costs—are stable over time, even as prices rose during the 2022 inflationary episode in the United States. This evidence indicates frequent margin reallocation along the supply chain. We apply our model, which links margin shares to bargaining weights, to quantify predictors of relative bargaining power between the manufacturer and retailers. Finally, we characterize the dynamics of cost pass-through and the mediating role of manufacturer-retailer bargaining, with implications for policy debates on tariffs and trade.
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Copy CitationSantiago Alvarez-Blaser, Alberto Cavallo, Alexander MacKay, and Paolo Mengano, "Markups and Cost Pass-through Along the Supply Chain," NBER Working Paper 34110 (2025), https://doi.org/10.3386/w34110.Download Citation
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