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Economic integration and the dynamics of firms’ competitive behavior

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  • Altomonte, Carlo
  • Nicolini, Marcella

Abstract

We investigate the evolution of firms’ competitive behavior in the EU by studying the dynamics of firms’ price-cost margins (PCMs) across four countries (France, Italy, Poland and Sweden), in three manufacturing and three services industries for around 170,000 firms over the period 1999–2007. By looking at density distributions of the PCM across firms, we detect an aggregation problem affecting country specific measures of PCM levels, with PCM changes providing instead an unbiased representation of industry dynamics. A Laspeyres-type decomposition of PCM changes shows pro-competitive effects over the period, induced mainly by the reallocation channel, and a tendency to a quality upgrading of firms, revealed by the positive interaction term. These trends are stronger after 2002. We also observe a trend towards lower PCMs across manufacturing industries, while the latter is not true for services. These findings are confirmed by a dynamic panel econometric exercise performed on the pooled firm-level sample.

Suggested Citation

  • Altomonte, Carlo & Nicolini, Marcella, 2012. "Economic integration and the dynamics of firms’ competitive behavior," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 383-402.
    • Handle: RePEc:eee:streco:v:23:y:2012:i:4:p:383-402
    DOI: 10.1016/j.strueco.2011.10.001
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    More about this item

    Keywords

    Price-cost margin; Kernel density; Laspeyres decomposition; Aggregation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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