Mark-ups and Market-Share Uncertainty: Theory and Evidence

Ali Choudhary and Muhammad Ali

No 49, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: The Phelps and Winter (1970) customer-market model predicts that firms will charge lower than the static monopoly mark-up because monopolistic pricing policy is moderated by the potential effect of high prices on the market-share. This paper extends Phelps and Winter (1970) to incorporate stochastic market- share evolution and shows that mark-ups could potentially exceed static monopoly mark-ups therefore reversing the original Phelps and Winter (1970) result. We also present valuable empirical evidence on British industries and show that market-share uncertainty and mark-ups are positively correlated. This can potentially explain the pension puzzle of 1988 where one observed both high mark-ups and high profitability. The paper also empirically shows that financial market indcies proxing for customer-value are linked with price mark-ups.

Date: 2002-08-29
New Economics Papers: this item is included in nep-mic
References: Add references at CitEc
Citations:

Downloads: (external link)
http://repec.org/res2002/Choudhary.pdf full text

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecj:ac2002:49

Access Statistics for this paper

More papers in Royal Economic Society Annual Conference 2002 from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().