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Monopoly power and terms of trade

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1998-05
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Abstract
The Prebisch-Singer (PS) theory predicts that tenns of trade, given low income elasticity of demand for primary products and market power of industrialized countries, for producers of primary cornmodities in developing countries worsen as income increases. Due to problems of defining the correct price index no pure empirical test of the PS hypothesis exists. This paper uses experimental methods to test the basic premise of the PS hypothesis. The experiments do not support the PS hypothesis. The monopolist is unable to exploit its market power and tenns of trade do not worsen for the primary producers as income increases.
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Theory of unequal exchange, Double Auction, Terms of Trade, Market power
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