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Monopoly power and terms of trade

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  • Michelitsch, Roland
  • Kujal, Praveen

Abstract

The Prebisch-Singer (PS) theory predicts that tenns of trade, given low income elasticity of demand for primary products and market power of industrialized countries, for producers of primary cornmodities in developing countries worsen as income increases. Due to problems of defining the correct price index no pure empirical test of the PS hypothesis exists. This paper uses experimental methods to test the basic premise of the PS hypothesis. The experiments do not support the PS hypothesis. The monopolist is unable to exploit its market power and tenns of trade do not worsen for the primary producers as income increases.

Suggested Citation

  • Michelitsch, Roland & Kujal, Praveen, 1998. "Monopoly power and terms of trade," UC3M Working papers. Economics 4145, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:4145
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    References listed on IDEAS

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    1. Charles N. Noussair & Charles R. Plott & Raymond G. Riezman, 2013. "An Experimental Investigation of the Patterns of International Trade," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 17, pages 299-328, World Scientific Publishing Co. Pte. Ltd..
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