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The Dynamics of Industrial Markups in Two Small Open Economies: Does National Competition Policy Matter ?

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  • Jozef Konings
  • Patrick Van Cayseele
  • Frederic Warzynski

Abstract

In this paper, we estimate markup ratios using firm-level data according to the techniques developed by Hall (1986, 1988) and Domowitz et al. (1988) for the Dutch and Belgian manufacturing industry from 1992 to 1997, to determine whether competition policy affects the pricing behaviour of firms. Competition law was applied less toughly in the Netherlands until January 1998. We find evidence of large markup ratios in the manufacturing industry as a whole and in a lot of 2-digit industries. The markup ratio did not decline in Belgium following the creation of a national competition policy authority. However we show that the markup ratio is higher in the Netherlands than in Belgium in the whole manufacturing industry but also in most smaller subsets. In addition, the import penetration ratio positively influences the markup ratio in the Netherlands, meaning that imports do not discipline the industry. Together these findings support the hypothesis that competition is useful to correct allocative inefficiencies.

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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces9914.

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Date of creation: Mar 1999
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Handle: RePEc:ete:ceswps:ces9914

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  1. Nickell, S.J., 1993. "Competition and Crporate Performance," Economics Series Working Papers 99155, University of Oxford, Department of Economics.
  2. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 55-66, February.
  3. 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.
  4. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
  5. Jonathan B. Baker, 1999. "Policy Watch: Developments in Antitrust Economics," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 181-194, Winter.
  6. repec:fth:eeccco:94 is not listed on IDEAS
  7. Robert E. Hall, 1986. "Market Structure and Macroeconomic Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 285-338.
  8. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  9. James Levinsohn, 1991. "Testing the Imports-as-Market-Discipline Hypothesis," NBER Working Papers 3657, National Bureau of Economic Research, Inc.
  10. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October.
  11. Nickell, Stephen & Nicolitsas, Daphne & Dryden, Neil, 1997. "What makes firms perform well?," European Economic Review, Elsevier, vol. 41(3-5), pages 783-796, April.
  12. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  13. André Sapir, 1992. "Regional integration in Europe," ULB Institutional Repository 2013/8200, ULB -- Universite Libre de Bruxelles.
  14. Jun, Sangjoon, 1998. "Procyclical Multifactor Productivity: Tests of the Current Theories," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(1), pages 51-63, February.
  15. Jacquemin, Alexis & Sapir, André, 1990. "Competition and Imports in the European Market," CEPR Discussion Papers 474, C.E.P.R. Discussion Papers.
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