In this report we calculate the change in final consumer prices due to minimum efficiencystandards, focusing on a standard economic model of the air-conditioning and heating equipment(ACHE) wholesale industry. The model examines the relationship between the marginal cost todistribute and sell equipment and the final consumer price in this industry. The model predictsthat the impact of a standard on the final consumer price is conditioned by its impact on marginaldistribution costs. For example, if a standard raises the marginal cost to distribute and sellequipment a small amount, the model predicts that the standard will raise the final consumerprice a small amount as well.Statistical analysis suggest that standards do not increase the amount of labor needed todistribute equipment?the same employees needed to sell lower efficiency equipment can sellhigh efficiency equipment. Labor is a large component of the total marginal cost to distributeand sell air-conditioning and heating equipment. We infer from this that standards have arelatively small impact on ACHE marginal distribution and sale costs. Thus, our model predictsthat a standard will have a relatively small impact on final ACHE consumer prices. Ourstatistical analysis of U.S. Census Bureau wholesale revenue tends to confirm this modelprediction.Generalizing, we find that the ratio of manufacturer price to final consumer price prior toa standard tends to exceed the ratio of the change in manufacturer price to final consumer priceresulting from a standard. The appendix expands our analysis through a typical distribution chainfor commercial and residential air-conditioning and heating equipment.
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