Cross-Country Relative Price Volatility: Effects of Market Structure

Using annual data on nine manufacturing sectors of eighteen OECD countries, the article studies the implications of market structure for cross-country relative price variability. It is found that, in accordance with predictions from a standard markup pricing model, reductions in market competition, along with increased nominal exchange rate volatility, are associated with greater variability of cross-country relative prices. The market structure also has similar effects on components of crosscountry relative price variability. The empirical findings are robust to the inclusion of various control variables and alternative sample specifications.Relative price volatility, market structure, price-cost margin, variance decomposition