The Review of Economics and Statistics Vol. 64 No. 3 1982
Price-Cost Margins in Producer Goods Industries and "The Importance of Being Unimportant"
Abstract
N this paper I investigate proposition that price-cost margin of a producer goods industry will vary systematically with what I call industry's importance of its output in costs of its industrial customers. The empirical results indicate that price-cost margins are indeed negatively associated with cost-importance, particularly in highly concentrated industries. In these industries at least, evidence seems to confirm the importance of being unimportant. In section I, I present relationship between derived demand elasticity for an industry's output and cost-importance of its output, and also analyze ways in which industry pricing coordination and transaction costs of changing input suppliers interact with cost-importance to influence industry price-cost margins. In sections II and III I describe process of sample selection and a method for calculating a measure of cost-importance for producer goods industries. In section IV I present empirical results of estimating relation between price-cost margins and cost-importance for a broad sample of producer goods industries, and in section V I summarize my findings and suggest some promising avenues for future research.
- DOI
- 10.2307/1925938
- Volume
- 64
- Issue
- 3
- Pages
- 405
- Sources
- openalex crossref