Price elasticities and pricing power in emerging markets

The case of petrochemical-derived plastics in South Africa

Johannes Wolfgang Fedderke, Witness Simbanegavi

Research output: Contribution to journalArticle

Abstract

This paper examines whether there necessarily exists a conflict between allocative and productive efficiency in small open economy markets. That productive efficiency favours market concentration is not in dispute, and the sole question we face is whether allocative efficiency suffers under high market concentration. We proceed theoretically and econometrically. We find that the conflict between productive and allocative efficiency is not necessarily as stringent as the international competition policy literature suggests should be the case. In particular, we note that the strategic interaction between the large domestic producer and its competitors makes feasible a range of alternative price elasticities of demand, and empirically that all price elasticities of demand are less than or equal to unity. Nevertheless, the impact of market structure is such as to render feasible a wide range of possible levels of pricing power.

Original languageEnglish (US)
Pages (from-to)16-41
Number of pages26
JournalSouth African Journal of Economics
Volume80
Issue number1
DOIs
StatePublished - Mar 2012

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Price elasticity
Emerging markets
South Africa
Plastics
Allocative efficiency
Productive efficiency
Market power
Market concentration
Price elasticity of demand
International competition
Small open economy
Dispute
Competitors
Competition policy
Market structure
Strategic interaction

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

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