This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Inferring Conduct under the Threat of Entry: The Case of the Brazilian Cement Industry

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Alberto Salvo

Additional information is available for the following registered author(s):

Abstract

This paper demonstrates that when an industry faces potential entry and this threat of entry constrains pre-entry prices, cost and conduct are not identified from the comparative statics of equilibrium. In such a setting, the identifying assumption behind the well-established technique of relying on exogenous demand perturbations to empirically distinguish between alternative hypotheses of conduct is shown to fail. The Brazilian cement industry, where the threat of imports restrains market outcomes, provides an empirical illustration. In particular, price-cost margins estimated using this established technique are considerably biased downward, underestimating the degree of market power. A test of conduct is proposed, adapted to this constrained setting, which suggests that outcomes in the industry are collusive and characterised by market division.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://sticerd.lse.ac.uk/dps/EI/EI38.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economics of Industry Papers with number 38.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:cep:stieip:38

Contact details of provider:
Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords: Conduct; Multimarket competition; Market division; Limit pricing; Cement;

Other versions of this item:

Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
L70 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - General
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Margaret E. Slade, 2004. "Market Power and Joint Dominance in U.K. Brewing," Journal of Industrial Economics, Blackwell Publishing, vol. 52(1), pages 133-163, 03. [Downloadable!] (restricted)
  2. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2002. "Instrumental variables and GMM: Estimation and testing," Boston College Working Papers in Economics 545, Boston College Department of Economics, revised 14 Feb 2003. [Downloadable!]
    Other versions:
  3. Philip M. Parker & Lars-Hendrik Roller, 1997. "Collusive Conduct in Duopolies: Multimarket Contact and Cross-Ownership in the Mobile Telephone Industry," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 304-322, Summer. [Downloadable!] (restricted)
  4. Gasmi, F & Laffont, J J & Vuong, Q, 1992. "Econometric Analysis of Collusive Behavior in a Soft-Drink Market," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 1(2), pages 277-311, Summer.
    Other versions:
  5. James A. Brander & Anming Zhang, 1990. "Market Conduct in the Airline Industry: An Empirical Investigation," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 567-583, Winter. [Downloadable!] (restricted)
  6. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92. [Downloadable!] (restricted)
  7. Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, vol. 74(5), pages 1016-32, December. [Downloadable!] (restricted)
  8. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    Other versions:
  9. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-42, March.
    Other versions:
  10. Corts, Kenneth S., 1998. "Conduct parameters and the measurement of market power," Journal of Econometrics, Elsevier, vol. 88(2), pages 227-250, November. [Downloadable!] (restricted)
  11. Lau, Lawrence J., 1982. "On identifying the degree of competitiveness from industry price and output data," Economics Letters, Elsevier, vol. 10(1-2), pages 93-99. [Downloadable!] (restricted)
  12. A. R. Pagan & A. D. Hall, 1983. "Diagnostic tests as residual analysis," Econometric Reviews, Taylor and Francis Journals, vol. 2(2), pages 159-218. [Downloadable!] (restricted)
  13. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March. [Downloadable!] (restricted)
    Other versions:
  14. Roberts, Mark J., 1984. "Testing oligopolistic behavior," International Journal of Industrial Organization, Elsevier, vol. 2(4), pages 367-383, December. [Downloadable!] (restricted)
  15. Gollop, Frank M. & Roberts, Mark J., 1979. "Firm interdependence in oligopolistic markets," Journal of Econometrics, Elsevier, vol. 10(3), pages 313-331, August. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
  17. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
    Other versions:
  18. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  19. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-37, March. [Downloadable!] (restricted)
    Other versions:
  20. Valerie Y. Suslow, 1986. "Estimating Monopoly Behavior with Competitive Recycling: An Application to Alcoa," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 389-403, Autumn. [Downloadable!] (restricted)
  21. Gasmi, F. & Laffont, J. J. & Vuong, Q. H., 1990. "A structural approach to empirical analysis of collusive behavior," European Economic Review, Elsevier, vol. 34(2-3), pages 513-523, May. [Downloadable!] (restricted)
  22. Newmark, Craig M., 1998. "Price and seller concentration in cement: effective oligopoly or misspecified transportation cost?," Economics Letters, Elsevier, vol. 60(2), pages 243-250, August. [Downloadable!] (restricted)
  23. Robert H. Porter, 1983. "A Study of Cartel Stability: The Joint Executive Committee, 1880-1886," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 301-314, Autumn. [Downloadable!] (restricted)
  24. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring. [Downloadable!] (restricted)
  25. Norman, G, 1979. "Economies of Scale in the Cement Industry," Journal of Industrial Economics, Blackwell Publishing, vol. 27(4), pages 317-37, June. [Downloadable!] (restricted)
  26. 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. [Downloadable!] (restricted)
  27. Gilbert, Richard & Vives, Xavier, 1986. "Entry Deterrence and the Free Rider Problem," Review of Economic Studies, Blackwell Publishing, vol. 53(1), pages 71-83, January. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stephen Ryan, 2005. "The Costs of Environmental Regulation in a Concentrated Industry," Working Papers 0510, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
  2. Adam Rosen, 2007. "Identification and estimation of firms' marginal cost functions with incomplete knowledge of strategic behavior," CeMMAP working papers CWP03/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
  3. In-Koo Cho, 2007. "Perishable Durable Goods," Economics Working Papers 0077, Institute for Advanced Study, School of Social Science. [Downloadable!]
Statistics
Access and download statistics

Did you know? You too can volunteer for RePEc, for example by editing a NEP report.

This page was last updated on 2009-11-19.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.