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Markups, entry regulation, and trade - Does country size matter?

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Author Info
Hoekman, Bernard
Hiau Looi Kee
Olarreaga, Marcelo

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Abstract

Actual, and potential competition is a powerful source of discipline on the pricing behavior of firms with market power. The authors develop a simple model that shows that the effects of new entry, and import competition on industry price-cost markups, depend on country size. The authors predicted that barriers to domestic entry would have a stronger anti-competitive effect in large countries, while barriers to foreign entry (imports) would have a stronger effect in small countries. After estimating markups for manufacturing sectors in forty-one industrial, and developing countries, they test these hypotheses, and find that the hypotheses cannot be rejected by the data. For example, although Indonesia, and Italy impose the same number of regulations on the entry of new firms, the effect of the regulations on manufacturing markups is twenty percent greater in Italy because of its larger size. Similarly, while Chile and Zimbabwe have the same import penetration ration, the market discipline effect of imports is thirteen percent greater in Zimbabwe because of its smaller size.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2662.

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Date of creation: 31 Aug 2001
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Handle: RePEc:wbk:wbrwps:2662

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Keywords: Water Treatment&Quality; Roads&Highways; Montreal Protocol; Water Conservation; Coastal and Marine Resources; Environmental Economics&Policies; Economic Theory&Research; Water and Industry; Trade and Regional Integration; Banks&Banking Reform;

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  1. B.N. Goldar & Sureshchand Aggarwal, 2004. "Trade liberalisation and price-cost margin in Indian industries," Indian Council for Research on International Economic Relations, New Delhi Working Papers 130, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
  2. Hoekman, Bernard & Kee, Hiau Looi, 2003. "Imports, Entry and Competition Law as Market Disciplines," CEPR Discussion Papers 3777, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Sophie Guilloux & Enisse Kharroubi, 2008. "Some preliminary evidence on the globalization-inflation nexus," Globalization and Monetary Policy Institute Working Paper 18, Federal Reserve Bank of Dallas. [Downloadable!]
    Other versions:
  4. Rumen Dobrinsky & Gábor Korösi & Nikolay Markov & László Halpern, 2004. "Firms’ Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary," William Davidson Institute Working Papers Series 2004-710, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  5. Hervé Boulhol, 2008. "The Convergence of Price–cost Margins," Open Economies Review, Springer, vol. 19(2), pages 221-240, April. [Downloadable!] (restricted)
    Other versions:
  6. H. Boulhol & S. Dobbelaere & S. Maioli, 2007. "Imports as product and labour market discipline," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/479, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
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  7. Aldaba, Rafaelita Mercado, 2005. "The Impact of Market Reforms on Competition, Structure and Performance of the Philippine Economy," Discussion Papers DP 2005-24, Philippine Institute for Development Studies. [Downloadable!]
  8. Clarke, George R. G., 2005. "Do government policies that promote competition encourage or discourage new product and process development in low and middle-income countries?," Policy Research Working Paper Series 3471, The World Bank. [Downloadable!]
  9. Hervé Boulhol, 2005. "Why haven't price-cost margins decreased with globalization ?," Cahiers de la Maison des Sciences Economiques bla06007, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
  10. Alejandro Castañeda, 2003. "Mexican manufacturing markups: procyclical behavior and the impact of trade liberalization," Economia Mexicana NUEVA EPOCA, , vol. 0(2), pages 209-230, July-Dece. [Downloadable!]
  11. Aslan, Alper & Kula, Ferit, 2008. "Türkiye İmalat Sanayinde Fiyat-Maliyet Marjları: Dönemler ve Sektörler İtibariyle Karsılastırmalı Bir Analiz," MPRA Paper 10606, University Library of Munich, Germany. [Downloadable!]
  12. Paolo Epifani & Gino Gancia, 2004. "Increasing Returns, Imperfect Competition and Factor Prices," Economics Working Papers 953, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2005. [Downloadable!]
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  13. Saatci, Mustafa & Aslan, Alper, 2007. "TÜRKİYE İMALAT SANAYİNDE İTHALATIN PİYASAYI DİSİPLİNE ETME HİPOTEZİNİN TESTİ: PANEL VERi YAKLASIMI," MPRA Paper 10604, University Library of Munich, Germany. [Downloadable!]
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