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Inferring market power under the threat of entry: the case of the Brazilian cement industry

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  • Alberto Salvo

Abstract

Consider a setting where threatened rather than actual import competition restrains a domestic oligopoly's prices. I show that not modelling the entry threat may underestimate the true degree of market power, as incumbents' blunted price responses to demand shocks resemble perfectly competitive behavior. Evidence from Brazilian cement markets points to an important role for imports in determining domestic cement prices, despite the near absence of imports. On assuming autarky, models with market power are rejected in favor of competition among incumbents. However, allowing a role for imports rejects the autarky assumption and precludes one from rejecting the presence of market power. Copyright (c) 2010, RAND.

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  • Alberto Salvo, 2010. "Inferring market power under the threat of entry: the case of the Brazilian cement industry," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 326-350.
  • Handle: RePEc:bla:randje:v:41:y:2010:i:2:p:326-350
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    References listed on IDEAS

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    Cited by:

    1. Cabral, Luís & Vasconcelos, Hélder, 2011. "Vertical integration and right of first refusal," Economics Letters, Elsevier, vol. 113(1), pages 50-53, October.
    2. Holmes, Thomas J. & Hsu, Wen-Tai & Lee, Sanghoon, 2014. "Allocative efficiency, mark-ups, and the welfare gains from trade," Journal of International Economics, Elsevier, vol. 94(2), pages 195-206.
    3. Shawn Klimek & James Schmitz & Timothy Dunne, 2010. "Does Foreign Competition Spur Productivity? Evidence From Post WWII U.S. Cement Manufacturing," 2010 Meeting Papers 805, Society for Economic Dynamics.
    4. Brito, Duarte & Ribeiro, Ricardo & Vasconcelos, Helder, 2013. "Quantifying the Coordinated Effects of Partial Horizontal Acquisitions," CEPR Discussion Papers 9536, C.E.P.R. Discussion Papers.
    5. Nikolaus Fink, 2016. "Formation and Adaptation of the Sugar Cartel in Austria–Hungary," WIFO Working Papers 508, WIFO.
    6. Bing Xu & Adrian Van Rixtel & Michiel Van Leuvensteijn, 2013. "Measuring bank competition in China: a comparison of new versus conventional approaches applied to loan markets," BIS Working Papers 422, Bank for International Settlements.
    7. Hepburn, Cameron J. & Quah, John K.-H. & Ritz, Robert A., 2013. "Emissions trading with profit-neutral permit allocations," Journal of Public Economics, Elsevier, vol. 98(C), pages 85-99.
    8. John Clapp & Katsiaryna Bardos & Tingyu Zhou, 2014. "Expansions and Contractions of Major US Shopping Centers," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 16-56, January.
    9. Federico Ciliberto & Jonathan W. Williams, 2014. "Does multimarket contact facilitate tacit collusion? Inference on conduct parameters in the airline industry," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 764-791, December.
    10. repec:eee:riibaf:v:42:y:2017:i:c:p:745-768 is not listed on IDEAS
    11. Timothy Dunne & Shawn Klimek & James Schmitz, Jr., 2010. "Competition and Productivity: Evidence from the Post WWII U.S. Cement Industry," Working Papers 10-29, Center for Economic Studies, U.S. Census Bureau.
    12. Tingyu Zhou & John M. Clapp, 2016. "Predicting Risks of Anchor Store Openings and Closings," The Journal of Real Estate Finance and Economics, Springer, vol. 52(4), pages 449-479, May.
    13. Jan De Loecker & Johannes Van Biesebroeck, 2016. "Effect of International Competition on Firm Productivity and Market Power," NBER Working Papers 21994, National Bureau of Economic Research, Inc.
    14. Jean-Pierre Ponssard & Catherine Thomas, 2010. "Capacity Investment under Demand Uncertainty. An Empirical Study of the US Cement Industry, 1994-2006," CESifo Working Paper Series 3166, CESifo Group Munich.
    15. Christopher Gedge & James W. Roberts & Andrew Sweeting, 2014. "A Model of Dynamic Limit Pricing with an Application to the Airline Industry," NBER Working Papers 20293, National Bureau of Economic Research, Inc.
    16. repec:aea:aecrev:v:107:y:2017:i:9:p:2784-2820 is not listed on IDEAS
    17. Hunold, Matthias & Hüschelrath, Kai & Laitenberger, Ulrich & Muthers, Johannes, 2017. "Competition, collusion and spatial sales patterns: Theory and evidence," ZEW Discussion Papers 17-035, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    18. Brito, Duarte & Ribeiro, Ricardo & Vasconcelos, Helder, 2014. "Measuring unilateral effects in partial horizontal acquisitions," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 22-36.
    19. Ciliberto, Federico & Williams, Jonathan, 2010. "Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry," MPRA Paper 24888, University Library of Munich, Germany.
    20. Loren Brandt & Johannes Van Biesebroeck & Luhang Wang & Yifan Zhang, 2017. "WTO Accession and Performance of Chinese Manufacturing Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2784-2820, September.
    21. Zhou, Tingyu & Clapp, John M., 2015. "The location of new anchor stores within metropolitan areas," Regional Science and Urban Economics, Elsevier, vol. 50(C), pages 87-107.

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