Do small firms price-cost margins follow those of large firms?

The paper investigates the extent to which small firms' price-cost margins follow those of large firms. A two-equation mode! is used with data for 36 Dutch three-digit manufacturing industries over the period 1975-86. The effects of market structure characteristics are also examined. The main result is that small firms (10-50 employees) appear to have the freedom to set prices above cost independently of larger firms in the same industry.