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Price and Markup Behaviour in Manufacturing

A Cross Country Study

9781840647303 Edward Elgar Publishing
Michael Olive, Macquarie University, Australia
Publication Date: 2002 ISBN: 978 1 84064 730 3 Extent: 168 pp
Price and Markup Behaviour in Manufacturing examines the role that cost, competing domestic and foreign prices, domestic demand and market structure play in determining the price and markup of manufacturing firms across a range of countries and industries. Michael Olive models imperfectly competitive behaviour at the firm level, establishing logical relationships between these variables. Aggregating these relationships gives predictions for price and markup at the industry level.

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Price and Markup Behaviour in Manufacturing examines the role that cost, competing domestic and foreign prices, domestic demand and market structure play in determining the price and markup of manufacturing firms across a range of countries and industries. Michael Olive models imperfectly competitive behaviour at the firm level, establishing logical relationships between these variables. Aggregating these relationships gives predictions for price and markup at the industry level.

Empirical analysis is carried out by estimating a pricing equation for 11 industrialised countries in Asia, Europe and North America, and for 24 International Standard Industrial Classification industries from 1970 to 1991. The results exhibit a pattern of incomplete pass-through from competing foreign price into industry price and markups that are not fixed. The author illustrates that for higher levels of industry concentration cost becomes less influential in determining industry price, while the opposite is true for competing domestic and foreign prices.

This comprehensive and thorough examination of the literature on pricing, the innovative model development and the comparative analysis in this study will be of great interest to government policymakers and academics wanting to keep abreast of new developments in the area of pricing and markup.
Critical Acclaim
‘This is a well-written piece of work which focuses on price and markup behaviour. It surveys previous studies, and makes its own additions to the theory of pricing. The main contribution of the work is the empirical work in which the author undertakes the estimation of price equations for a number of countries on a comparable basis. In this way the book adds to the understanding of price behaviour.’
– Malcolm Sawyer, University of Leeds, UK

‘Michael Olive makes an important contribution to our understanding of price dynamics and the determinants of markups in the global economy. He estimates domestic and foreign influences on pricing in 24 manufacturing industries over 11 major industrial countries, using data covering the rise and decline of worldwide inflation from 1970 through 1991. The results show that the major influence on price inflation in an industry is invariably the change in its own production cost. However, upward movements in the domestic business cycle and increases in prices of both foreign competitors and other domestic industries often significantly increase inflation, particularly in industries with both high trade exposure and high concentration of domestic production (i.e. a small number of domestic producers). These results should be of great interest to economic policymakers as well as to academics trying to unravel the complexities of inflation in a highly interdependent modern economy. As an extra bonus, there is a very thorough and insightful discussion of pricing theory and previous empirical work on pricing in open economies.’
– Harry Bloch, Curtin Business School, Curtin University of Technology, Australia

‘Olive provides an unusually broad and deep literature review, which will be useful to other scholars. And he adds to this his own original and successful research into the increasingly important question of the determinants of international differences in pricing behaviour.’
– Tim Hazledine, University of Auckland, New Zealand
Contents
Contents: Preface Part I: Introduction 1. Overview 2. Perspectives on Price and Markup Behaviour Part II: An Empirically Testable Model 3. A Comparative Static Analysis of the Firm 4. A Model of Manufacturing Industry Pricing Part III: Estimation using Cross Country Data 5. Estimation of the Model when Demand Functions are Similar and Conjectural Elasticities are the Same Across Industries 6. Estimation of the Model when Demand Functions and Conjectural Elasticities Differ Across Industries Part IV: Discussion and Conclusion 7. Price and Markup Behaviour in Manufacturing Appendices Bibliography Index
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