Premium
PRICE ELASTICITIES AND PRICING POWER IN EMERGING MARKETS: THE CASE OF PETROCHEMICAL‐DERIVED PLASTICS IN SOUTH AFRICA 1
Author(s) -
FEDDERKE JOHANNES W.,
SIMBANEGAVI WITNESS
Publication year - 2012
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/j.1813-6982.2011.01308.x
Subject(s) - allocative efficiency , economics , market power , competitor analysis , productive efficiency , microeconomics , competition (biology) , production (economics) , monopoly , ecology , management , biology
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.