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Abstract
The elasticity of price transmission measures the extent to which a change in world prices will be transmitted to
an importing country, with an elasticity of less than one being attributed to trade barriers. Recent research
highlights the role that multinational trading companies may play in impeding price transmission. Further, in
markets characterised by monopolistic competition an estimate of the partial elasticity of demand may be of
limited practical value if no account is taken of the reaction of competitors. In this paper the potential for market
structure to affect price transmission and trade elasticities is demonstrated. The elasticity of price transmission
has been central to a revised approach to estimation of trade elasticities and has been used to measure the impact
of endogenous trade policy. The presumption that only government intervention can impact upon price
transmission is challenged with examples demonstrating why theory would suggest otherwise. While we review
some recent evidence of imperfect markets, a full assessment of the empirical significance is left to future
research. The paper is part of on-going research into the impact of multinationals on Australia’s trade
performance and is intended to motivate further research into the impact of imperfect competition on trade
elasticities. The ultimate goal is to provide policymakers with more reliable estimates of trade elasticities.