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Firms’ Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary

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  • Rumen Dobrinsky

    ()

  • Gábor Korösi

    ()

  • Nikolay Markov

    ()

  • László Halpern

    ()

Abstract

Under perfect competition and constant returns to scale, firms producing homogeneous products set their prices at their marginal costs which also equal their average costs. However, the departure from these standard assumptions has important implications with respects to the derived theoretical results and the validity of the related empirical analysis. In particular, monopolistic firms will charge a markup over their marginal costs. We show that firms’ markups tend to be directly associated with the employed production technology, more specifically with their returns to scale. Accordingly, we analyze the implications for the markup ratios from the incidence of non-constant returns to scale. We present quantitative results illustrating the effect of the returns to scale index on the firms’ price markups, as well as the relationship between the two indicators, on the basis of firm-level data for Bulgarian and Hungarian manufacturing firms.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-710.

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Length: 28 pages
Date of creation: 01 Jul 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-710

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Keywords: markup pricing; market imperfections; return to scale; Bulgaria; Hungary;

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  1. Wu, Yangru & Zhang, Junxi, 2000. "Endogenous markups and the effects of income taxation:: Theory and evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 77(3), pages 383-406, September.
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  18. Rumen Dobrinsky & Boyko Nikolov & Nikolay Markov, 2001. "Mark-Up Pricing in Bulgarian Manufacturing," William Davidson Institute Working Papers Series 389, William Davidson Institute at the University of Michigan.
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Cited by:
  1. Rosen Marinov, 2010. "Competitive Pressure in Transition: A Role for Trade and Competition Policies?," Journal of Industry, Competition and Trade, Springer, vol. 10(1), pages 1-31, March.
  2. Rezitis, Anthony N., 2010. "Evaluating the state of competition of the Greek banking industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(1), pages 68-90, February.
  3. András Simonovits, 2006. "Social Security Reform in the US: Lessons from Hungary," IEHAS Discussion Papers 0602, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, revised 24 Apr 2006.
  4. Kamil Galuscak & Lubomir Lizal, 2011. "The Impact of Capital Measurement Error Correction on Firm-Level Production Function Estimation," Working Papers 2011/09, Czech National Bank, Research Department.
  5. Anthony Rezitis & Maria Kalantzi, 2011. "Investigating Market Structure of the Greek Manufacturing Industry: A Hall-Roeger Approach," Atlantic Economic Journal, International Atlantic Economic Society, vol. 39(4), pages 383-400, December.
  6. Alexandra Ferreira Lopes, 2007. "The Costs of EMU for Transition Countries," Money Macro and Finance (MMF) Research Group Conference 2006 2, Money Macro and Finance Research Group.
  7. Iván Major, 2006. "Why do (or do not) banks share customer information? A comparison of mature private credit markets and markets in transition," IEHAS Discussion Papers 0603, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, revised 24 Apr 2006.

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