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- Title
PRICE-COST MARGINS IN PRODUCER GOODS INDUSTRIES AND 'THE IMPORTANCE OF BEING UNIMPORTANT'
- Authors
Bradburd, Ralph M.
- Abstract
In this article the author analyses whether the price-cost margin of a producer goods industry will vary systematically with the industry's cost-importance, the importance of its output in the costs of its industrial customers. He presents a relationship between the derived demand elasticity for an industry's output and the cost-importance of its output, and also analyzes the ways in which industry pricing coordination and transaction costs of changing input suppliers interact with cost-importance to influence industry price-cost margins. Profit maximization and the theory of derived demand provide the theoretical basis for the relation between price-cost margins and cost-importance. The study suggests that if transaction costs of changing suppliers are low, one should observe a negative relation between industry price-cost margins and cost-importance only in highly concentrated industries, and a positive relation elsewhere. Several regression equations were estimated to investigate the hypothesis that price-cost margins in producer goods industries will be affected by industry levels of cost-importance.
- Subjects
ELASTICITY (Economics); MARGIN accounts; COST; INDUSTRIAL costs; INDUSTRIAL organization (Economic theory); ECONOMETRIC models; PRICING; TRANSACTION costs; REGRESSION analysis; ECONOMIC models
- Publication
Review of Economics & Statistics, 1982, Vol 64, Issue 3, p405
- ISSN
0034-6535
- Publication type
Article
- DOI
10.2307/1925938