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Changing institutions in the European market: the impact on mark-ups and rents allocation

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  • Antonio Bassanetti

    ()
    (Bank of Italy)

  • Roberto Torrini

    ()
    (Bank of Italy)

  • Francesco Zollino

    ()
    (Bank of Italy)

Abstract

We investigate whether the completion of the Single Market Programme has enhanced competition on the product markets across European countries, taking into account the companion structural reforms undertaken by the member countries, particularly in the labour market and the institutional setting of important industries (i.e. network industries). We test for a break in both mark-ups and the division of rent between capital and labour based on a statistical model incorporating efficient bargaining in the labour market. Using industry data for ten EU countries we find that, without controlling for changes in the rent sharing, mark-up estimates tend to increase in the 1990s. However, once we assume efficient bargaining in the labour market, mark-ups remain virtually unchanged or, in some sectors or groups of countries, even decrease; this reflects the declining shares of rents accruing to workers as a result of their diminished bargaining power. The evidence is particularly strong for high and medium-tech manufacturing, for construction and for those activities that went through deep institutional changes and privatization programmes.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 781.

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Date of creation: Dec 2010
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Handle: RePEc:bdi:wptemi:td_781_10

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Keywords: institutional changes; mark-up; rent-sharing;

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  1. Ghazala Azmat & Alan Manning & John Van Reenen, 2007. "Privatization, Entry Regulation and the Decline of Labor's Share of GDP: A Cross-Country Analysis of the Network Industries," CEP Discussion Papers dp0806, Centre for Economic Performance, LSE.
  2. Roeger, Werner, 1995. "Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 316-30, April.
  3. Dobbelaere, Sabien, 2004. "Estimation of price-cost margins and union bargaining power for Belgian manufacturing," International Journal of Industrial Organization, Elsevier, vol. 22(10), pages 1381-1398, December.
  4. Andrea Bassanini & Romain Duval, 2006. "The Determinants of Unemployment across OECD Countries," Post-Print halshs-00120584, HAL.
  5. Rachel Griffith & Rupert Harrison & Helen Simpson, 2010. "Product Market Reform and Innovation in the EU," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(2), pages 389-415, 06.
  6. Sabien Dobbelaere & Jacques Mairesse, 2008. "Panel Data Estimates Of The Production Function And Product And Labor Market Imperfections," NBER Working Papers 13975, National Bureau of Economic Research, Inc.
  7. Dew-Becker, Ian & Gordon, Robert J, 2008. "The Role of Labour Market Changes in the Slowdown of European Productivity Growth," CEPR Discussion Papers 6722, C.E.P.R. Discussion Papers.
  8. Harald Badinger, 2007. "Has the EU’s Single Market Programme Fostered Competition? Testing for a Decrese in Markup Rations in EU Industries," Working Papers 135, Oesterreichische Nationalbank (Austrian Central Bank).
  9. Damien J. Neven & Lars-Hendrik Röller & Zhentang Zhang, 2002. "Endogenous Costs and Price-Cost Margins," Discussion Papers of DIW Berlin 294, DIW Berlin, German Institute for Economic Research.
  10. Joaquim Oliveira Martins & Stefano Scarpetta & Dirk Pilat, 1996. "Mark-Up Ratios in Manufacturing Industries: Estimates for 14 OECD Countries," OECD Economics Department Working Papers 162, OECD Publishing.
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Cited by:
  1. João Amador & Ana Cristina Soares, 2013. "Competition in the Portuguese economy: Estimated price-cost margins under imperfect labour markets," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.

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