Inferring conduct under the threat of entry: the case of the Brazilian cement industry

Salvo, Alberto (2004) Inferring conduct under the threat of entry: the case of the Brazilian cement industry. EI (38). Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.

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Abstract

This paper demonstrates that when an industry faces potential entry and this threat of entry constrains pre-entry prices, cost and conduct are not identified from the comparative statics of equilibrium. In such a setting, the identifying assumption behind the well-established technique of relying on exogenous demand perturbations to empirically distinguish between alternative hypotheses of conduct is shown to fail. The Brazilian cement industry, where the threat of imports restrains market outcomes, provides an empirical illustration. In particular, price-cost margins estimated using this established technique are considerably biased downward, underestimating the degree of market power. A test of conduct is proposed, adapted to this constrained setting, which suggests that outcomes in the industry are collusive and characterised by market division.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://sticerd.lse.ac.uk
Additional Information:	© 2004 Alberto Salvo
Divisions:	STICERD
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HD Industries. Land use. Labor
JEL classification:	L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization; Horizontal Anticompetitive Practices L - Industrial Organization > L7 - Industry Studies: Primary Products and Construction > L70 - General
Date Deposited:	08 Jul 2008 15:20
Last Modified:	11 Dec 2024 18:40
URI:	http://eprints.lse.ac.uk/id/eprint/6728

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