ABSTRACT
How firms change their pricing behaviour in response to a change in trade policy remains of interest to researchers in international economics. In general, when faced with intensified international competition, domestic industries, which may have reaped oligopoly profits in a protected domestic market, are forced to behave more competitively. This phenomenon is frequently claimed to be especially relevant in developing countries where the protected domestic market often will only support a few firms. This phenomenon is termed in Levinsohn (1993) the imports-as-market-discipline hypothesis. In the imports-as-market-discipline hypothesis, firms are always technically efficient. The hypothesis is related to, but still quite different from, another firm-level hypothesis in trade liberalization literature that shows how firms enhance their X-efficiency as a consequence of the increased competitive pressure induced by trade liberalization. To a certain extent, it is related to an older body of empirical research adopting what is sometimes called the structure–conduct–performance paradigm. 2
