Firms’ Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary
AbstractUnder 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 InfoPaper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-710.
Length: 28 pages
Date of creation: 01 Jul 2004
Date of revision:
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markup pricing; market imperfections; return to scale; Bulgaria; Hungary;
Other versions of this item:
- Rumen Dobrinsky & Gabor Korosi & Nikolay Markov & Laszlo Halpern, 2004. "Firms’ Price Markups and Returns to Scale in Imperfect Markets - Bulgaria and Hungary," IEHAS Discussion Papers 0412, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-03-20 (All new papers)
- NEP-COM-2005-03-20 (Industrial Competition)
- NEP-IND-2005-03-20 (Industrial Organization)
- NEP-MIC-2005-03-20 (Microeconomics)
- NEP-TRA-2005-03-20 (Transition Economics)
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