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Price-cost margins, prices and concentration in US manufacturing: a panel study

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  • Vaughan Dickson

Abstract

This study tries to separate the efficiency and market power effects of higher concentration for a panel of 253 US manufacturing industries covering the years 1963 to 1992. To do so, two fixed effects estimations of price equations are introduced. The first includes, among the independent variables, average variable cost and a mark-up term dependent on the four firm concentration ratio and isolates the partial effect of concentration on price holding cost constant (the market power effect). The second omits average cost and uses the bias induced to make inferences about the efficiency effect. The results suggest both market power and efficiency effects exist, with the latter dominating. Specifically, for given average cost, higher concentration leads to higher prices, but when average cost are relegated to the error term, higher concentration leads to lower prices.

Suggested Citation

  • Vaughan Dickson, 2005. "Price-cost margins, prices and concentration in US manufacturing: a panel study," Applied Economics Letters, Taylor & Francis Journals, vol. 12(2), pages 79-83.
  • Handle: RePEc:taf:apeclt:v:12:y:2005:i:2:p:79-83
    DOI: 10.1080/1350485042000307161
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    References listed on IDEAS

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    1. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
    2. Gisser, Micha, 1984. "Price Leadership and Dynamic Aspects of Oligopoly in U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1035-1048, December.
    3. Peltzman, Sam, 1977. "The Gains and Losses from Industrial Concentration," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 229-263, October.
    4. Robert W. Crandall & Clifford Winston, 2005. "Does antitrust policy improve consumer welfare? Assessing the evidence," Chapters, in: Colin Robinson (ed.), Governments, Competition and Utility Regulation, chapter 2, Edward Elgar Publishing.
    5. Dickson, V. A., 1981. "Conjectural variation elasticities and concentration," Economics Letters, Elsevier, vol. 7(3), pages 281-285.
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    Cited by:

    1. Muellbauer, John, 2018. "The Future of Macroeconomics," INET Oxford Working Papers 2018-10, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    2. Ivana Blazkova, & Ondrej Dvoulety, 2017. "Is the price-cost margin affected by the market concentration? Evidence from the Czech food and beverages industry," Business and Economic Horizons (BEH), Prague Development Center, vol. 13(2), pages 256-269, May.

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