An empirical model of mark-ups in a quality-differentiated export market

This paper develops an empirical model to allow for imperfect competition in the market for traded goods. A simultaneous equation model incorporating the demand for and supply of Taiwanese footwear exports to the United States is specified and estimated. The model allows the identification of two separate sources of mark-ups in export prices. The first comes from the U.S.-imposed quantitative restriction on these exports. The second comes from imperfect competition in the international market for these exports. The results suggest competitive behavior by Taiwanese footwear exporters. The quantitative restriction resulted in a 16.9 percent mark-up of prices over marginal cost.