The relative price discipline of domestic versus foreign entry

In this paper we combine data on industry entry, imports, and producer price indexes for 46 4-digit SIC industries over the 1972 to 1987 period to determine the impact of entry on industry pricing. Domestic entry's restraining influence is weak and occurs only at high levels of concentration while import changes exhibit a procompetitive influence for lower levels of concentration that include nearly all industries in the sample. In addition, the threat of foreign entry plays a role in disciplining domestic pricing; the impact of nontariff barriers on price changes seems to increase with concentration levels.Professors of Economics, The American University and Bryant College, respectively. This paper is a revision of one presented at the 1992 ASSA meetings in New Orleans. We are grateful to the discussants Cindy Alexander and H. E. Frech for their comments, and we also thank Don Alexander, Roger Sherman, and two anonymous referees for their comments on earlier drafts. We alone are responsible for any remaining errors.