Mark-Up Pricing and Import Competition: Have Imports Disciplined Tunisian Manufacturing Firms?

Two approaches have been taken to examine the effect of increased import competition on mark-ups in industries. In one approach, the gross price-average cost margins, defined as the ratio of sales net of expenditure on labor and intermediate inputs over sales is used as an indicator of the mark-up, and it is regressed on a set of explanatory variables including variables representing the level of import competition. In the other approach, the methodology developed by Hall (1988) is used. It involves regression of output growth rate on a share-weighted growth rate of inputs, the regression yielding the mark-up as the slope coefficient. By allowing the coefficient to vary over time, one can test whether import competition affects mark-up. This paper extends Hall’s approach to examine whether intensified international competition forces industries to price more competitively by examining six manufacturing sectors between 1972 and 1999 in Tunisia. We find significant but plausible and moderate mark-ups to be present in Tunisian manufacturing industry. The econometric evidence tends also to support the hypothesis that increased exposure to import competition serves to lower the mark-up. In other words, import competition disciplines domestic firms in imperfectly competitive industries. However, the regression results obtained here suggest that the direct effect of competition law on industry mark-up is not significant.