Abstract
We investigate the relationship between industrial market structure and price flexibility (the administered-pricing hypothesis) across United States manufacturing industries by embedding market-structure variables in a model relating relative price variability (dispersion) and inflation. While we find support for a positive relationship between variability and inflation, we do not find that high seller concentration lessens the impact of inflation on price variability. We do find that the larger the efficient-sized plant, the lower the impact of inflation on variability. We also find strong effects of input prices and degree of product durability on relative price variability.
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We are extremely indebted to Philip Bromiley, Linda Schneider, and T. Scott Thompson for their econometric and computational advice throughout this project. We are grateful as well to Daniel Sichel, our discussant at the Econometric Society Winter Meetings, January 1993, and to Marshall Reinsdorf, a participant in that session. We also want to thank Leonard Weiss, George John, and two anonymous referees for their insights, and Rama Mavuduru for his help with the PPI tape. Computational support was provided by a grant from the Minnesota Supercomputer Institute. Of course, any mistakes are ours alone.
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Caucutt, E.M., Ghosh, M. & Kelton, C.M.L. Pricing behavior in United States manufacturing industries: A statistical study using disaggregated data. Rev Ind Organ 9, 745–771 (1994). https://doi.org/10.1007/BF01026583
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DOI: https://doi.org/10.1007/BF01026583