Market Power Of Chinese Export Firms

According to the theory of International Economics, over the globalization period, firms are able to practice(geographically differentiated)mark-ups over marginal costs in destination markets, which depend on the market power domestic firms have in the export market. The larger the market power ,the higher the mark-ups, and the less, therefore, the monopoly overcharge will be.The masterstroke of this paper is the empirical estimate of market power and mark-ups in export markets. Begin with the theoretical analysis of market power, we derive the elasticity of residual demand faced the domestic firms in export markets. Then through a comparison of the elasticity of residual demand and the Lerner Index, we identify the elasticity of residual demand with the mark-ups of domestic firms.During these years, Chinese industry continues to present an excessive competition in exporting practice, the key concern for most observers is why does this happened and the influence of the market power of Chinese exporters. This paper adapts the approach developed by Goldberg and Knetter(1999) to our specific aims. According to this approach, the elasticity of residual demand faced the domestic firms in export markets depends on the demand of the export markets the labor cost of competitive supply and the exchange rates between competitive firms and the destination markets. Furthermore, we adjust this model by considering the problem of re-export country or region.Using readily available data on destination-specific values and quantities of Chinese footwear industry exports, we determine the degree of market power by estimating the mark ups practiced by Chinese footwear firms. Our findings indicate that Chinese footwear exporters are somewhat able to practice mark-ups in three main destination markets, while the influence of competitive supply exists as well, and the export prices are generally in a low level. The reasons for the perplexity are in two aspects: firstly, the market power of Chinese exporters arises from their comparative advantage of lower labor costs, which may constrain Chinese industry to the pricing policies of emerging countries whose labor costs are competitive to Chinese and the...