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The Impact Of European And Global Integration On The Mark-Up Of Prices Over Costs

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  • Dawn Holland

    (National Institute of Economic and Social Research, d.holland@niesr.ac.uk)

Abstract

This paper develops a new approach for investigating the determinant of the mark-up of prices over costs. We estimate basic price equations around an expression for marginal cost that is derived from a cost minimisation problem, using a vector error correction approach to avoid endogeneity bias. Observed basic prices include the mark-up over marginal costs, and this mark-up is of interest to policymakers as an indicator of competition and ultimately as a determinant of the level of equilibrium employment. We look at the factors driving this mark-up, and in particular look at the role of EMU, as well as globalisation, the European Single Market and openness to trade and the introduction of the euro. We use a panel data set that includes both EMU and non-EMU members. The results indicate an important role for trade liberalisation in determining the mark-up, but openness itself and the introduction of the euro do not appear to have a significant role.

Suggested Citation

  • Dawn Holland, 2009. "The Impact Of European And Global Integration On The Mark-Up Of Prices Over Costs," National Institute Economic Review, National Institute of Economic and Social Research, vol. 208(1), pages 118-128, April.
    • Handle: RePEc:sae:niesru:v:208:y:2009:i:1:p:118-128
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    Cited by:

    1. Becker, Sascha S. & Nautz, Dieter, 2012. "Inflation, price dispersion and market integration through the lens of a monetary search model," European Economic Review, Elsevier, vol. 56(3), pages 624-634.

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