Abstract
The literature indicates that international manufactured product markets are segmented and imperfectly competitive. An industry pricing equation that encompasses markup pricing is constructed from flexible specifications of the firm's cost and demand functions, along with the profit-maximizing equilibrium condition. Instrumental variables estimation is carried out for 24 three-digit International Standard Industrial Classification industries, with data pooled across Germany, Japan, the United Kingdom and the United States, for the period 1970–1991. The markup model is rejected for most industries. However, something approaching a fixed markup does exist in many industries, particularly when the Herfindahl index is low. The results indicate that countries with high levels of industry concentration are more likely to have prices and markups that are influenced by competing foreign prices. Nearly all markups are either pro-cyclical or a-cyclical.
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Bloch, H., Olive, M. Influences on Pricing and Markup in Segmented Manufacturing Markets*. Journal of Industry, Competition and Trade 3, 87–107 (2003). https://doi.org/10.1023/A:1025482604454
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DOI: https://doi.org/10.1023/A:1025482604454