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The Effect of Market Growth and Contraction on Industry Price-Cost Margins

Author

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  • John E. Kwoka, Jr.

    (George Washington University)

Abstract

Economic theory predicts that market growth or contraction may affect the role of industry concentration upon price-cost margins. Existing empirical work, however, has not specified the relationship completely or correctly. This article sets out a model consistent with theory and then tests several hypotheses on manufacturing industry data. It finds that the effect of concentration on industry pricing behavior declines when the overall market either grows or contracts sharply, and declines when the industry is highly capital-intensive. The effect of concentration, however, persists for the vast majority of cases.

Suggested Citation

  • John E. Kwoka, Jr., 1990. "The Effect of Market Growth and Contraction on Industry Price-Cost Margins," Eastern Economic Journal, Eastern Economic Association, vol. 16(3), pages 221-227, Jul-Sep.
    • Handle: RePEc:eej:eeconj:v:16:y:1990:i:3:p:221-227
    as

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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume16/V16N3P221_227.pdf
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    References listed on IDEAS

    as
    1. Porter, Michael E, 1974. "Consumer Behavior, Retailer Power and Market Performance in Consumer Goods Industries," The Review of Economics and Statistics, MIT Press, vol. 56(4), pages 419-436, November.
    2. Bradburd, Ralph M & Caves, Richard E, 1982. "A Closer Look at the Effect of Market Growth on Industries' Profits," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 635-645, November.
    3. Asch, Peter & Seneca, Joseph J, 1975. "Characteristics of Collusive Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 23(3), pages 223-237, March.
    4. Henry G. Grabowksi & Dennis C. Mueller, 1978. "Industrial Research and Development, Intangible Capital Stocks, and Firm Profit Rates," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 328-343, Autumn.
    5. Kwoka, John E, Jr, 1979. "The Effect of Market Share Distribution on Industry Performance," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 101-109, February.
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    Cited by:

    1. Daniel Ryan, 2000. "Fluctuations in productivity growth rates and input utilization in U.S. manufacturing," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(2), pages 150-163, June.
    2. Daniel Ryan, 1997. "The behaviour of productivity growth rates and price-cost margins during contractions and expansions," Applied Economics, Taylor & Francis Journals, vol. 29(7), pages 889-893.

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