Price-Marginal Cost Relation, Industrial Concentration and External Competition: A Study for Chile

Abstract

This article studies the effect of entry barriers on industrial concentration and the effects of external competence and industrial concentration on the price-marginal cost relation. This is done by using a model that explicitly considers collusion among firms. Empirical results -based on the 1979 Chilean manufactured industrial census- show that entry barriers explain the degree of industrial concentration. For the consumer goods industry external opening -but not market structure- explains market power. In the case of the industrial goods industry, the level of imports exerts a direct impact on the price-marginal cost relation, suggesting that collusion between domestic and external producers is possible.