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The Effect of Privatization and Competitive Pressure on Firms' Price-Cost Margins: Micro Evidence from Emerging Economies

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Author Info
Konings, Jozef
Van Cayseele, Patrick
Warzynski, Frederic

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Abstract

This Paper uses representative firm level panel data of 1,701 Bulgarian and 2,047 Romanian manufacturing firms to estimate market power (i.e. price-cost margins) and to analyse how these are affected by privatization and increased competitive pressure. In contrast to earlier work that analyses the effect of ownership on firm performance, the estimation method we use deals with potential endogeneity problems that are associated with estimating firm performance, by making use of the properties of the primal and dual Solow residual. State-owned enterprises have lower price-cost margins than privatized and foreign owned firms, which suggests that state-owned enterprises price closer to marginal costs and are more concerned with maximizing social welfare (allocative efficiency). An alternative interpretation is that state-owned firms have higher costs than private firms. Foreign-owned firms have the highest price-cost margins. Also privatized domestic-owned firms have higher price-cost margins than state-owned enterprises. In addition, our results give support to the idea that opening to trade has a disciplining effect on firms’ market power. We find that increased import penetration is associated with lower price cost margins in sectors where product market concentration is relatively high.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3703.

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Date of creation: Jan 2003
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Handle: RePEc:cpr:ceprdp:3703

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Related research
Keywords: firm performance market power privatization transition

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Find related papers by JEL classification:
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
P30 - Economic Systems - - Socialist Institutions and Their Transitions - - - General
P50 - Economic Systems - - Comparative Economic Systems - - - General

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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  3. Evzen Kocenda & Jan Svejnar, 2003. "Ownership and Firm Performance after Large-Scale Privatization," CERGE-EI Working Papers wp209, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
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  7. Levinsohn, James, 1993. "Testing the imports-as-market-discipline hypothesis," Journal of International Economics, Elsevier, vol. 35(1-2), pages 1-22, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rebekka Christopoulou & Philip Vermeulen, 2008. "Markups in the euro area and the US over the period 1981-2004 - a comparison of 50 sectors," Working Paper Series 856, European Central Bank. [Downloadable!]
  2. László Halpern & Gábor Kõrösi, 2003. "Corporate performance and market structure during transition in Hungary," William Davidson Institute Working Papers Series 2003-606, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  3. John Hutchinson & Ana Xavier, 2004. "Comparing the Impact of Credit Constraints on the Growth of SMEs in a Transition Country with an Established Market Economy," LICOS Discussion Papers 15004, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
    Other versions:
  4. Filip Abraham & Jozef Konings & Stijn Vanormelingen, 2006. "Price and wage setting in an integrating Europe : firm level evidence," Research series 200610-5, National Bank of Belgium. [Downloadable!]
  5. Lundin, Nan Nan, 2004. "Import Competition, Product Differentiation and Mark-Ups - Microeconomic evidence from Swedish manufacturing in the 1990s," Working Paper Series 195, Trade Union Institute for Economic Research. [Downloadable!]
  6. Modén, Karl-Markus & Norbäck, Pehr-Johan & Persson, Lars, 2007. "Efficiency and Ownership Structure – The Case of Poland," Working Paper Series 703, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
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