The impact of foreign and domestic competition on pricing in Australian manufacturing
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Date
1991-09
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Abstract
prices set by domestic producers are related to both domestic production costs and the prices set by foreign competitors in an analysis of profit-maximizing pricing for domestic production in a small open economy. This analysis provides the basis for the specification of regression relating domestic price to unit production cost and the price of competing foreign products. Regression are calculated for each of thirty-four Australian manufacturing industries. Variation across industries is found in the strength of the influence of both direct production cost and foreign price. The estimated coefficients from the individual industry regressions are then regressed against concentration of production in the domestic market and the trade exposure of the domestic industry. These second-stage regressions indicate that higher levels of both concentration of the domestic market and exposure to trade are associated with domestic prices being more strongly affected by foreign prices of competing products and less strongly affected by the direct costs of the domestic producers.
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Keywords
Open economy, Austraila, Trade, Manufacturing industries