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Can Imports Discipline Collusive Firms? The Case of the Philippine Cement Industry

  • Aldaba, Rafaelita M.

Applying a conjectural variations (CV) model introduced by Haskel and Scaramozzino (H&S model 1997), the paper examines the impact of trade liberalization on the Philippine cement industry where alleged cartel activities have taken place after the entry of the world’s Big Three cement firms: Holcim, Cemex, and Lafarge. In the H&S model, the relationship between firm behavior and competition is estimated with price cost margin (price minus marginal costs over price) as indicator of competition and profitability. The model is extended to assess the impact of imports on competition using import penetration ratio as proxy for trade policy. The paper focuses on the following questions: did the removal of import restriction and reduction of tariffs affect competition in the cement industry? Are imports effective in disciplining domestic firms and reducing their market power? The results imply that imports do not seem to affect profitability and competition in the industry. Given the ability of firms to engage in anticompetitive behavior and the absence of an effective competition policy in the Philippines, the gains from trade liberalization are nullified. The country’s experience in the cement industry illustrates that trade liberalization is not a substitute for competition policy. For imports to effectively discipline the market, trade liberalization must be accompanied by strict competition policy.

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Paper provided by Philippine Institute for Development Studies in its series Discussion Papers with number DP 2008-01.

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Length: 14
Date of creation: 2008
Date of revision:
Handle: RePEc:phd:dpaper:dp_2008-01
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  1. Robert Feenstra, 2004. "Estimating The Effects Of Trade Policy," Working Papers 9510, University of California, Davis, Department of Economics.
  2. Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  3. Appelbaum, Elie, 1979. "Testing price taking behavior," Journal of Econometrics, Elsevier, vol. 9(3), pages 283-294, February.
  4. Cororaton, Caesar B. & Cuenca, Janet S., 2000. "An Analysis of Philippine Trade Reforms in 1995-2000 Using the 1994 APEX Model," Discussion Papers DP 2000-36, Philippine Institute for Development Studies.
  5. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
  6. Iwata, Gyoichi, 1974. "Measurement of Conjectural Variations in Oligopoly," Econometrica, Econometric Society, vol. 42(5), pages 947-66, September.
  7. Emmanuel S. de Dios, 1985. "Protection, Concentration and the Direction of Foreign Investments," UP School of Economics Discussion Papers 198512, University of the Philippines School of Economics.
  8. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
  9. Haskel, Jonathan & Scaramozzino, Pasquale, 1997. "Do Other Firms Matter in Oligopolies?," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 27-45, March.
  10. de Dios, Loreli C., 1994. "A Review of the Remaining Import Restrictions," Research Paper Series RPS 1994-08, Philippine Institute for Development Studies.
  11. Levinsohn, James, 1993. "Testing the imports-as-market-discipline hypothesis," Journal of International Economics, Elsevier, vol. 35(1-2), pages 1-22, August.
  12. Cororaton, Caesar B., 2003. "Analyzing the Impact of Trade Reforms on Welfare and Income Distribution Using CGE Framework: The Case of the Philippines," Discussion Papers DP 2003-01, Philippine Institute for Development Studies.
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