Profitability, concentration, imports and exports: the case of Taiwan`s midstream petrochemical industries

Abstract

Based on an open-economy oligopoly model, causalities among domestic firms` price-cost margin (PCM), domestic concentration, import and export shares are derived and a simultaneous-equation system is established. By utilizing the 1989-1997 data of Taiwan`s midstream petrochemical industries, three-stage least squares is used to estimate the system. The empirical results confirm the derived results, and demonstrate: (1) there exist simultaneous relationships among domestic PCM, domestic concentration, import and export shares; (2) import concentration affects domestic concentration positively, but affects domestic PCM, import and export shares negatively; (3) diversifying international markets improves domestic firms` PCM; (4) domestic firms seem to be in a situation of collusion.