The Effects of Competition, Liquidity and Exports on Markups: Evidence from the UK Food and Beverages Sector

Abstract

This study investigates the pricing decisions of the UK food and beverages sector over 2007–2016. The markup model formulated by Hall (1988) and Roeger (1995) is employed where market power is expressed in terms of pricing decisions reflected by the difference between the price level and the marginal cost of production. The analysis is conducted under three steps: the first step estimates the markup ratio of the UK food and beverages sector over 2007–2016; the second step provides the price-cost margin of the 32 4 digit level NACE Rev.2 constituent industries over 2007–2016; and the last step tests the relationship between the cross-sectional estimates of market power and the structural effects of concentration, liquidity and exports over 2009, 2011, 2015 and 2016. The results suggest the presence of imperfect competitive conduct in the sector, while the three structural effects appear to have a significant influence on the pricing decisions of the UK food and beverages industries.