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Deregulation as a Means to Increase Competition and Productivity

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Author Info
Laura Valkonen
Abstract

This study examines how deregulation affects product market competition and thereby productivity. Productivity grows when firms ameliorate their performance, which they will be unwilling to do in the absence of competition. It obliges firms to renounce high rents and cut costs, which increases static efficiency. However, static efficiency boosts productivity only temporarily. Long-term gains are derived from dynamic efficiency, which competition promotes in two ways. First, it increases incentives to innovate, and secondly, it accelerates creative destruction. Since regulations impede the free entry of rivals, they ensure firms a quiet life. Deregulation has therefore great potential to boost productivity growth. This study describes the process of regulatory reform in Finland. In addition to a country-level analysis, deregulation and its consequences are examined in service station and restaurant industries, which have experienced extensive reforms. The purpose was to see whether deregulation has induced external restructuring in these sectors. The results give some indication of external restructuring in both industries.

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Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1014.

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Length: 84 pages
Date of creation: 05 May 2006
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Handle: RePEc:rif:dpaper:1014

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Keywords: deregulation; competition; productivity; entry;

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Find related papers by JEL classification:
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
L80 - Industrial Organization - - Industry Studies: Services - - - General

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Full references

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. Olli Martikainen & Jussi Autere & Markku Nurmela, 2006. "Performance Improvement in Public Organizations, How to Leverage ICT Investments," Discussion Papers 1022, The Research Institute of the Finnish Economy. [Downloadable!]
  2. Kari Alho, 2006. "Climate Policies and Economic Growth," Discussion Papers 1024, The Research Institute of the Finnish Economy. [Downloadable!]
  3. Elad Harison & Heli Koski, 2006. "Innovative Software Business Strategies: Evidence from Finnish Firms," Discussion Papers 1042, The Research Institute of the Finnish Economy. [Downloadable!]
  4. Jyrki Ali-Yrkkö, 2006. "Technology Sourcing Through Acquisitions – Do High Quality Patents Attract Acquires?," Discussion Papers 1025, The Research Institute of the Finnish Economy. [Downloadable!]
  5. Jyrki Ali-Yrkkö & Mika Maliranta, 2006. "Impact of R&D on Productivity - Firm-level Evidence from Finland," Discussion Papers 1031, The Research Institute of the Finnish Economy. [Downloadable!]
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