Product Market Competition and the Impact of Price Uncertainty on Investment: Some Evidence From us Manufacturing Industries

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We estimate the impact of price uncertainty on investment using a panel of US manufacturing industries. Pooling the data for all industries, uncertainty has no impact on current investment. However, for industries that have low levels of seller concentration and thus are likely to be highly competitive, the estimated impact is negative and statistically significant, whilst for industries with high levels of seller concentration, the impact is always small and not significantly different from zero. The finding of a negative relationship between investment and price uncertainty in competitive industries is broadly consistent with models that incorporate irreversibility of capital investment.