Description:
The average price of cement in Africa was the highest of any continent in 2011, according to data from the International Comparison Program. An empirical industry equilibrium model distinguishes between the fundamental drivers of price differences across economies: demand, costs, conduct, and entry. The model reveals that in 2011 Africa had the highest cement markups and marginal costs in the world. However, by 2017 the price had fallen by one third, the largest decline in the world, coincident with substantial entry and capacity expansion. Estimated fixed costs are positive, although not systematically higher in Africa compared with other continents, suggesting equally free entry in the presence of a minimum efficient scale that does not vary across continents. Markups are inconsistent with systematic cartel conduct. Together these results suggest that the small size of national markets rather than oligarchic institutions explain why the price of cement was so high. As the market has grown, prices have fallen