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Price Formation and Import Penetration in U.K. Manufacturing Industry*

Published online by Cambridge University Press:  17 August 2016

Andrew Murfin  and
Keith Cowling
Andrew Murfin
Affiliation:
(Birbeck College, London)
Keith Cowling
Affiliation:
(University of Warwick, Coventry)
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Extract

The hypothesis that the U.K.’s domestic manufacturing industry is subject to significant foreign price competition has been frequently vaunted in both the academic and journalistic literature. Empirical examinations of this hypothesis have either related domestic to foreign prices — in times series analysis — or some measure of the domestic price-cost markup to a tariff or import share variable — in the cross-section approach. Since our concern is with allegedly increasing international competition over time, we examine a simple price formation specification in time series.

We proceed by discussing the theoretical and empirical literature. It is suggested that the existing empirical results may have several possible alternative explanations and that U.K. manufacturing industry may not be subject to significant foreign price competition. It is argued that the conventional hypothesis that imports are independent of the domestic oligopoly structure is not altogether convincing. We pursue a specification which is an adaptation of that adopted by Coutts et al (1978) and use this to question the conventional view of import price competition. The results obtained in the estimation of this model, while not conclusive, do give grounds for doubting the conventional hypothesis.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 47 , Issue 3-4 , September 1981 , pp. 307 - 333
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1981 

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Footnotes

*

We are grateful to John Cable, Paul Geroski, Norman Ireland, Bruce Lyons, John Muellbauer, Richard Portes, Ron Smith and Paul Stoneman for their helpful comments and suggestions.

References

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