Testing for Market Power in Multi-Product Industries across Multiple Export Markets

Abstract

A large body of theoretical literature has developed in the past 15 years incorporating various models of imperfect competition into international trade theory.' Empirical work testing for imperfect competition in export markets, however, has been much more limited. In particular, the empirical evidence in support of widespread imperfect competition in U.S. export and import sectors is somewhat scant and mixed.2 One technique for assessing the existence of market power in export markets has been developed by Knetter [33] who estimated a reduced form single equation in which the export price to a specific market for a good was a function of the exchange rate, a country specific dummy variable, and a time dummy. Knetter rejected the null hypothesis of perfectly competitive markets in nearly all of the U.S. and German export markets studied.3 His methodology has been adopted by other researchers who have rejected the perfect competition hypothesis in other U.S. export markets.4