Cost pass-through in the US automobile market

We study cost pass-through in the U.S. automobile market using a framework that incorporates the effects of cost changes on input decisions. We find t hat accounting for firms' factor-market decisions significantly increases m easured cost pass-through, although we reject the hypothesis of full cost p ass-through and constant markups. In addition, our evidence suggests that c ost shocks common to all manufacturers have a greater effect on prices than do model-specific cost shocks. Finally, we examine how pass-through varies with manufacturer nationality, finding that U.S. firm cost pass-through ex ceeds that of European and Asian firms.