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The role of competition in macro models

University of British Columbia

In this study a macro model is outlined in which noncompetitive as well as competitive product price behaviour can be incorporated and the macro implications compared. A variety of non-competitive pricing models are considered and on the basis of these (and in conjunction with a chapter linking the micro to the macro analysis), it is argued that non-competitive pricing is potentially important in a macro model. It can generate macro relative share, price, and output behaviour different from that generated by price - equals - marginal cost competitive behaviour. In the empirical investigations of Canadian manufacturing industries, evidence of non-competitive price behaviour is found. The pro-cyclical standard competitive behaviour of gross-margins (mark-ups on variable costs) is not generally observed. Combining the theoretical with the empirical results, it is concluded that non-competitive pricing is not only potentially important, but of actual importance because of the empirical significance of non-competitive price behaviour. The importance of this for macro policy is briefly considered in the final chapter.

Text

2010-02-01

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http://hdl.handle.net/2429/19536

Economics

University of British Columbia

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