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Market Structure: Concentration and Imports as Determinants of Industry Margins

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Author Info

  • Alejandro Castañeda Sabido

    (El Colegio de México)

  • David Mulato

    (Universidad Torcuato di Tella)

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    Abstract

    The paper analyzes the determinants of price-cost margins following traditional industrial organization approaches. The price-cost margins are made function of the concentration index, and the degree of import penetration. We find that imports act as a market disciplining device that reduces the price-cost margins of the domestic industry. After trade liberalization, the impact of concentration diminishes. Controlling for cyclical behavior of the price-cost margins the paper shows that cross-section studies tend to bias the estimates. A distinction between durables and non-durables is made, finding strong evidence for concentration to affect the price-cost margins of durables.

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    File URL: http://codex.colmex.mx:8991/exlibris/aleph/a18_1/apache_media/P3BSQV31JNGMK6LV8T5V3A2CLKDH5M.pdf
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    Bibliographic Info

    Article provided by El Colegio de México, Centro de Estudios Económicos in its journal Estudios Económicos.

    Volume (Year): 21 (2006)
    Issue (Month): 2 ()
    Pages: 177-202

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    Handle: RePEc:emx:esteco:v:21:y:2006:i:2:p:177-202

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    Web page: http://www.colmex.mx/centros/cee/
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    Related research

    Keywords: price-cost margins; import penetration; concentration; cyclical effects;

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    References

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    1. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October.
    2. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
    3. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    4. Collins, Norman R & Preston, Lee E, 1969. "Price-Cost Margins and Industry Structure," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 271-86, August.
    5. Charles R. Nelson & Richard Startz, 1988. "Some Further Results on the Exact Small Sample Properties of the Instrumental Variable Estimator," NBER Technical Working Papers 0068, National Bureau of Economic Research, Inc.
    6. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
    7. Pugel, Thomas A, 1980. "Foreign Trade and US Market Performance," Journal of Industrial Economics, Wiley Blackwell, vol. 29(2), pages 119-29, December.
    8. Nadiri, M Ishaq & Prucha, Ingmar R, 1996. "Estimation of the Depreciation Rate of Physical and R&D Capital in the U.S. Total Manufacturing Sector," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 43-56, January.
    9. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
    10. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," NBER Working Papers 2115, National Bureau of Economic Research, Inc.
    11. Jacquemin, Alexis, 1982. "Imperfect Market Structure and International Trade-Some Recent Research," Kyklos, Wiley Blackwell, vol. 35(1), pages 75-93.
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    Citations

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    Cited by:
    1. Robert A. Blecker, 2012. "Stolper-Samuelson Revisited: Trade and Distribution with Oligopolistic Profits," Working Papers 2012-06, American University, Department of Economics.
    2. James W. Bono & David H. Wolpert, 2009. "Statistical prediction of the outcome of a noncooperative game," Working Papers 2009-20, American University, Department of Economics.
    3. Robert A. Blecker, 2009. "Comercio, Empleo y Distribución: Efectos de la Integración Regional y Global," Working Papers 2009-21, American University, Department of Economics.

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