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Reform in a Differentiated-Product Industry: The Case of the Korean Cigarette Manufacturing Industry

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  • Heechul Min

    (Hansung University)

Abstract

This paper explores the ramifications of privatization and deregulation in a differentiated-product industry. The analysis focuses on the change in firms’ product portfolio and pricing policy. Using product-level data on the Korean cigarette manufacturing industry, which underwent major reform recently, a random-coefficient discrete choice model is estimated to approximate substitution patterns among cigarette products. The findings are as follows. First, in the post-reform period, new products are significantly less price-elastic than existing ones; however, no such relationship is found in the pre-reform period. Second, data in the pre-reform period is not consistent with firm-level profit maximization mainly due to the failure to internalize within-firm substitution. In the post-reform period, however, partial evidence supports the view that pricing of new products is compatible with firm-level profit maximization. Overall, the analysis suggests that firm efficiency improves in the post-reform period through the introduction of profitable products and the proper pricing of these products.

Suggested Citation

  • Heechul Min, 2011. "Reform in a Differentiated-Product Industry: The Case of the Korean Cigarette Manufacturing Industry," Korean Economic Review, Korean Economic Association, vol. 27, pages 57-74.
  • Handle: RePEc:kea:keappr:ker-20110630-27-1-03
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    References listed on IDEAS

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    Cited by:

    1. Heechul Min, 2015. "Consumer benefits of reforming a state-dominated industry," Journal of Regulatory Economics, Springer, vol. 47(1), pages 58-77, February.
    2. Bartosz Olesiński, 2020. "The Analysis of the Tobacco Product Bans Using a Random Coefficients Logit Model," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 12(2), pages 113-144, June.

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    More about this item

    Keywords

    Privatization; Product mix; Pricing;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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