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

Vaughan Dickson ()

Applied Economics Letters, 2005, vol. 12, issue 2, 79-83

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.

Date: 2005
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DOI: 10.1080/1350485042000307161

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