Oligopoly behaviour, pricing and imports in Australian consumer non-durable goods manufacturing

Abstract

Oligopoly behaviour by domestic firms faced with foreign competition in a small open economy is examined in the context of a market for differentiated products. Market power is measured using conjectural variations, distinguishing two models of oligopoly based alternatively on Cournot and Bertrand behaviour. This leads to the econometric specification of price-cost margin, import share and budget share equations consistent with an oligopoly equilibrium that encompasses both models. The resulting regression model is applied to quarterly data covering the period from 1984 to 2000 for each of the two-digit Australian manufacturing industries producing primarily consumer non-durable goods.