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The Effects of Privatization and Competitive Pressure on Firms?Price-cost Margins: Micro Evidence from Emerging Economies

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Author Info
Jozef Konings
Patrick Van Cayseele
Frederic Warzynski

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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 analyze how these are affected by privatization and increased competitive pressure. In contrast to earlier work that analyzes 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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Publisher Info
Paper provided by LICOS - Centre for Institutions and Economic Performance, K.U.Leuven in its series LICOS Discussion Papers with number 12502.

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Length: 42 pages
Date of creation: 2002
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Handle: RePEc:lic:licosd:12502

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Related research
Keywords: market power; privatization; firm performance; transition;

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Find related papers by JEL classification:
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
P3 - Economic Systems - - Socialist Institutions and Their Transitions
P5 - Economic Systems - - Comparative Economic Systems

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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. Pradeep Mitra & Alexander Muravyev & Mark E. Schaffer, 2008. "Convergence in institutions and market outcomes: Cross-country and time-series evidence from the BEEPS surveys in transition economies," CERT Discussion Papers 0809, Centre for Economic Reform and Transformation, Heriot Watt University. [Downloadable!]
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  2. 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:
  3. Jan De Loecker & Frederic Warzynski, 2009. "Markups and firm-level export status," NBER Working Papers 15198, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Delis, Manthos D & Tsionas, Efthymios, 2009. "The joint estimation of bank-level market power and efficiency," MPRA Paper 14040, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  5. 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!]
  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!]
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  7. 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!]
  8. Sylvain Barde, 2008. "A Generalised Variable Elasticity of Substitution Model of New Economic Geography," Documents de Travail de l'OFCE 2008-33, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  9. 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!]
  10. Jeroen Hupkes & J. Maks, 2006. "Competition in the Netherlands and Belgium: Service sector evidence," European Journal of Law and Economics, Springer, vol. 22(2), pages 165-179, September. [Downloadable!] (restricted)
  11. 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!]
  12. Filip Abraham & Jozef Konings & Stijn Vanormelingen, 2009. "The effect of globalization on union bargaining and price-cost margins of firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(1), pages 13-36, April. [Downloadable!] (restricted)
    Other versions:
  13. Fernandes, Ana M. & Paunov, Caroline, 2009. "Does tougher import competition foster product quality upgrading ?," Policy Research Working Paper Series 4894, The World Bank. [Downloadable!]
  14. Jan Loecker & Jozef Konings & Patrick Cayseele, 2008. "Merger Review: How Much of Industry is Affected in an International Perspective?," Journal of Industry, Competition and Trade, Springer, vol. 8(1), pages 1-19, March. [Downloadable!] (restricted)
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