Markups, entry regulation, and trade - Does country size matter?
AbstractActual, 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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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 2662.
Date of creation: 31 Aug 2001
Date of revision:
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Other versions of this item:
- Hoekman, Bernard & Kee, Hiau Looi & Olarreaga, Marcelo, 2001. "Mark-ups, Entry Regulation and Trade: Does Country Size Matter?," CEPR Discussion Papers 2853, C.E.P.R. Discussion Papers.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
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