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The Effects of Privatization and Competitive Pressure on Firms' Price-Cost Margins: Micro Evidence from Emerging Economies

  • Jozef Konings

    (K.U. Leuven, Belgium, and CEPR, London)

  • Patrick Van Cayseele

    (K. U. Leuven, Belgium)

  • Frederic Warzynski

    (Aarhus School of Business and Universidad Carlos III de Madrid)

This paper uses representative panel data on 1,701 Bulgarian and 2,047 Romanian manufacturing firms to analyze how price-cost margins are affected by privatization and competitive pressure. Privatization is associated with higher price-cost margins. This effect is stronger in highly competitive sectors, which suggests that the creation of competitive markets and privatization go together. It also suggests that privatized firms reduce costs rather than increase prices, as in highly competitive markets firms are more likely pricetakers. Import penetration is associated with lower price-cost margins in sectors where product market concentration is high, but in more competitive sectors this effect is reversed. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 87 (2005)
Issue (Month): 1 (February)
Pages: 124-134

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Handle: RePEc:tpr:restat:v:87:y:2005:i:1:p:124-134
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