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The Effectiveness of Competition Policy and the Price-Cost Margin: Evidence from Panel Data

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  • Patrick McCloughan

    ()
    (Indecon International Economic Consultants)

  • Seán Lyons

    (Economic and Social Research Institute (ESRI))

  • William Batt

    (London Economics)

Abstract

This paper presents robust panel data econometric evidence suggesting that more effective competition policy curtails the exercise of market power because countries in which competition policy is judged to be more effective are characterised by lower market price-cost margins, controlling for other factors, including market growth, import penetration and spare capacity. The measure of competition policy effectiveness incorporated into our analysis is the annual survey-based ratings of national competition authorities (NCAs) produced by Global Competition Review (GCR). Our findings imply a role for competition in enhancing economic competitiveness and that government should continue to support NCAs in enforcing competition policy.

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File URL: http://www.esri.ie/UserFiles/publications/20070921112454/WP209.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP209.

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Length: 27 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:esr:wpaper:wp209

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References

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  1. Rachel Griffith & Rupert Harrison & Helen Simpson, 2006. "Product market reform and innovation in the EU," IFS Working Papers W06/17, Institute for Fiscal Studies.
  2. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, Productivity and Growth: OECD Evidence," OECD Economics Department Working Papers 347, OECD Publishing.
  3. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and Innovation: An Inverted U Relationship," NBER Working Papers 9269, National Bureau of Economic Research, Inc.
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  6. Beata K. Smarzynska, 2003. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages," William Davidson Institute Working Papers Series 548, William Davidson Institute at the University of Michigan.
  7. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  8. James Levinsohn, 1991. "Testing the Imports-as-Market-Discipline Hypothesis," NBER Working Papers 3657, National Bureau of Economic Research, Inc.
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  10. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
  11. Jozef Konings & Patrick Van Cayseele & Frederic Warzynski, 1999. "The Dynamics of Industrial Markups in Two Small Open Economies: Does National Competition Policy Matter ?," Center for Economic Studies - Discussion papers ces9914, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  12. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
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  14. Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, vol. 43(171), pages 267-74, August.
  15. 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.
  16. Simeon Djankov & Bernard Hoekman, 2000. "Market discipline and corporate efficiency: evidence from Bulgaria," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 190-212, February.
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Cited by:
  1. Jürgen Janger, 2008. "Supply-Side Triggers for Inflation in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 34–69.
  2. Russell Pittman, 2009. "Who Are You Calling Irrational? Marginal Costs, Variable Costs, and the Pricing Practices of Firms," EAG Discussions Papers 200903, Department of Justice, Antitrust Division.

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