This study is concerned with the explanation of differences in price-cost
margins of manufacturing industries using a longitudinal data set consisting of
averaged data from 66 Dutch industries from 1974 through 1986. Our major
concern is investigating whether price-cost margins are more procyclical in concentrated
than in unconcentrated industries.
The relation between the size of the mark-up of price over marginal cost and
the degree of imperfect competition has received considerable attention in the
industrial organisation literature. See Cubbin (1988) and Schmalensee (1989)
for almost exhaustive surveys of the empirical literature. One of the main indicators
of the degree of imperfect competition is seller concentration. The correct
measurement of the influence of seller concentration on the size of the
mark-up depends on the level of demand pressures (see section 2 for a discussion).
This influence can be best measured using a panel data set covering a
period including various stages of the business cycle.