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Product Market Competition and the Impact of Price Uncertainty on Investment: Some Evidence from US Manufacturing Industries

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  • Ghosal, Vivek
  • Loungani, Prakash

Abstract

The authors estimate the impact of price uncertainty on investment using a panel of U.S. manufacturing industries. Pooling the data for all industries, uncertainty has no impact on current investment. However, for industries that have low levels of seller concentration and, thus, are likely to be highly competitive, the estimated impact is negative and statistically significant, while for industries with high levels of seller concentration, the impact is always small and not significantly different from zero. The finding of a negative relationship between investment and price uncertainty in competitive industries is broadly consistent with models that incorporate irreversibility of capital investment. Copyright 1996 by Blackwell Publishing Ltd.

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  • Ghosal, Vivek & Loungani, Prakash, 1996. "Product Market Competition and the Impact of Price Uncertainty on Investment: Some Evidence from US Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 217-228, June.
  • Handle: RePEc:bla:jindec:v:44:y:1996:i:2:p:217-28
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    References listed on IDEAS

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    1. Pindyck, Robert S, 1993. "A Note on Competitive Investment under Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 273-277, March.
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    8. Kessides, Ioannis N, 1990. "Market Concentration, Contestability, and Sunk Costs," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 614-622, November.
    9. Ghosal, Vivek, 1995. "Input Choices under Price Uncertainty," Economic Inquiry, Western Economic Association International, vol. 33(1), pages 142-158, January.
    10. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-233, March.
    11. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1987. "Oligopoly Supergames: Some Empirical Evidence on Prices and Margins," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 379-398, June.
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