An empirical model of pricing, market share and market conduct: An application to import competition in US manufacturing

In this paper we set out a new empirical model of pricing, market share and market conduct for a differentiated products industry. The model exhibits the property of a variable elasticity of firm demand: as a firm's market share increases, it faces increasingly inelastic demand. Price cost margins therefore increase as market share rises. Market conduct is described using conjectural variations, The model has a flexible functional formulation and is particularly suitable for time series estimation. We illustrate its use by investigating the structure of market competition in pricing strategies between domestic and importing firms in different sectors of US industry during the 1980s.