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Mark-ups, Entry Regulation and Trade: Does Country Size Matter?

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  • Hoekman, Bernard
  • Kee, Hiau Looi
  • Olarreaga, Marcelo

Abstract

Actual and potential competition is a powerful source of discipline on the pricing behavior of firms with market power. A simple model is developed that shows that the effects of import competition and domestic entry regulation on industry price-cost markups depend on country size. Barriers to domestic entry are predicted to have stronger anti-competitive effects in large countries, whereas the impact of barriers to foreign entry (i.e., imports) should be stronger in small countries. Following estimation of markups for manufacturing sectors in 41 developed and developing countries, these hypotheses are tested and cannot be rejected by the data. For example, although Italy and Indonesia impose the same number of regulations on entry of new firms, their impact on manufacturing markups is 20 percent higher in Italy due to its larger size. Similarly, Chile and Zimbabwe have the same import penetration ratio, but the market discipline effect of imports on markups is 13 percent higher in Zimbabwe due to its smaller size.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2853.

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Date of creation: Jul 2001
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Handle: RePEc:cpr:ceprdp:2853

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Keywords: country size; entry regulation; import penetration; industry markup;

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References

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  1. Henrik Horn & James Levinsohn, 1997. "Merger Policies and Trade Liberalization," NBER Working Papers 6077, National Bureau of Economic Research, Inc.
  2. Richardson, Martin, 1999. "Trade and Competition Policies: Concordia Discors?," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 649-64, October.
  3. Susanto Basu & John G. Fernald, 1994. "Are apparent productive spillovers a figment of specification error?," International Finance Discussion Papers 463, Board of Governors of the Federal Reserve System (U.S.).
  4. Damien NEVEN & Paul SEABRIGHT, 1995. "Trade Liberalisation and the Co-ordination of Competition Policy," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9503, Université de Lausanne, Faculté des HEC, DEEP.
  5. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
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Citations

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Cited by:
  1. Saatci, Mustafa & Aslan, Alper, 2007. "TÜRKİYE İMALAT SANAYİNDE İTHALATIN PİYASAYI DİSİPLİNE ETME HİPOTEZİNİN TESTİ: PANEL VERi YAKLASIMI," MPRA Paper 10604, University Library of Munich, Germany.
  2. Herv� Boulhol & Sabien Dobbelaere & Sara Maioli, 2009. "Imports as Product and Labour Market Discipline," Tinbergen Institute Discussion Papers 09-002/3, Tinbergen Institute.
  3. Rumen Dobrinsky & Gábor Korösi & Nikolay Markov & László Halpern, 2004. "Firms’ Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary," William Davidson Institute Working Papers Series 2004-710, William Davidson Institute at the University of Michigan.
  4. Hervé Boulhol, 2005. "The convergence of price-cost margins," Cahiers de la Maison des Sciences Economiques bla05056, Université Panthéon-Sorbonne (Paris 1).
  5. Rafaelita M. Aldaba, 2005. "The Impact of Market Reforms on Competition, Structure and Performance of the Philippine Economy," Trade Working Papers 22306, East Asian Bureau of Economic Research.
  6. Guilloux, S. & Kharroubi, E., 2008. "Some Preliminary Evidence on the Globalization-Inflation Nexus," Working papers 195, Banque de France.
  7. Alejandro Castañeda, 2003. "Mexican manufacturing markups: procyclical behavior and the impact of trade liberalization," Economia Mexicana NUEVA EPOCA, , vol. 0(2), pages 209-230, July-Dece.
  8. Hervé Boulhol, 2006. "Why Haven't Price-Cost Margins Decreased with Globalization ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00084267, HAL.
  9. Hoekman, Bernard & Kee, Hiau Looi, 2003. "Imports, Entry and Competition Law as Market Disciplines," CEPR Discussion Papers 3777, C.E.P.R. Discussion Papers.
  10. Hervé Boulhol, 2005. "Why haven't price-cost margins decreased with globalization ?," Cahiers de la Maison des Sciences Economiques bla06007, Université Panthéon-Sorbonne (Paris 1).
  11. Paolo Epifani & Gino Gancia, 2004. "Increasing returns, imperfect competition and factor prices," Economics Working Papers 953, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2005.
  12. Aslan, Alper & Kula, Ferit, 2008. "Türkiye İmalat Sanayinde Fiyat-Maliyet Marjları: Dönemler ve Sektörler İtibariyle Karsılastırmalı Bir Analiz," MPRA Paper 10606, University Library of Munich, Germany.
  13. Clarke, George R. G., 2005. "Do government policies that promote competition encourage or discourage new product and process development in low and middle-income countries?," Policy Research Working Paper Series 3471, The World Bank.

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