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Has the EU's Single Market Programme Fostered Competition? Testing for a Decrease in Mark-up Ratios in EU Industries

  • Harald Badinger

We use a panel approach, covering 10 EU Member States over the period 1981-99, for each of three major industry groups (manufacturing, construction and services) and 18 more detailed industries to test whether the EU's Single Market Programme has led to a reduction in firms' mark-ups over marginal costs. We address explicitly the uncertainty with respect to the timing of the changeover and allow for a possibly continuous regime shift in a smooth transition analysis. Where regime shifts can be found, the velocity of transition is extremely high, making the linear model a justifiable approximation. We also test for discrete structural breaks in the time window from 1986 to 1996, taking up endogeneity concerns in a generalized method of moments framework. Mark-up reductions are found for aggregate manufacturing (although it is also suggested that mark-ups increased in some manufacturing industries in the precompletion period at the end of the 1980s) and also for construction. In contrast, mark-ups have gone up in most service industries since the early 1990s, which confirms the weak state of the Single Market for services and suggests that anti-competitive defence strategies have emerged in EU service industries. Copyright Blackwell Publishing Ltd and the Department of Economics, University of Oxford 2007.

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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 69 (2007)
Issue (Month): 4 (08)
Pages: 497-519

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Handle: RePEc:bla:obuest:v:69:y:2007:i:4:p:497-519
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