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Mark-ups, Entry Regulation and Trade: Does Country Size Matter?

Author

Listed:
  • Hoekman, Bernard
  • Kee, Hiau Looi
  • Olarreaga, Marcelo

Abstract

Actual and potential competition is a powerful source of discipline on the pricing behavior of firms with market power. A simple model is developed that shows that the effects of import competition and domestic entry regulation on industry price-cost markups depend on country size. Barriers to domestic entry are predicted to have stronger anti-competitive effects in large countries, whereas the impact of barriers to foreign entry (i.e., imports) should be stronger in small countries. Following estimation of markups for manufacturing sectors in 41 developed and developing countries, these hypotheses are tested and cannot be rejected by the data. For example, although Italy and Indonesia impose the same number of regulations on entry of new firms, their impact on manufacturing markups is 20 percent higher in Italy due to its larger size. Similarly, Chile and Zimbabwe have the same import penetration ratio, but the market discipline effect of imports on markups is 13 percent higher in Zimbabwe due to its smaller size.

Suggested Citation

  • 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.
  • Handle: RePEc:cpr:ceprdp:2853
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Salman Ahmad & Attiya Yasmin Javid, 2015. "Analysing the Price Cost Markup and Its Behaviour over the Business Cycles in Case of Manufacturing Industries of Pakistan," PIDE-Working Papers 2015:117, Pakistan Institute of Development Economics.
    2. Hervé Boulhol & Sabien Dobbelaere & Sara Maioli, 2011. "Imports as Product and Labour Market Discipline," British Journal of Industrial Relations, London School of Economics, vol. 49(2), pages 331-361, June.
    3. Kee, Hiau Looi & Hoekman, Bernard, 2007. "Imports, entry and competition law as market disciplines," European Economic Review, Elsevier, vol. 51(4), pages 831-858, May.
    4. Guilloux, S. & Kharroubi, E., 2008. "Some Preliminary Evidence on the Globalization-Inflation Nexus," Working papers 195, Banque de France.
    5. Hervé Boulhol, 2008. "The Convergence of Price–cost Margins," Open Economies Review, Springer, vol. 19(2), pages 221-240, April.
    6. P. Lelio Iapadre & Giuseppe Pace, 2016. "Trade Intermediaries and the Tariff Pass-through," Journal of Industry, Competition and Trade, Springer, vol. 16(4), pages 441-454, December.
    7. Clarke, George R. G., 2005. "Do government policies that promote competition encourage or discourage new product and process development in low and middle-income countries?," Policy Research Working Paper Series 3471, The World Bank.
    8. Paolo Epifani & Gino Gancia, 2006. "Increasing Returns, Imperfect Competition, and Factor Prices," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 583-598, November.
    9. Aldaba, Rafaelita M., 2005. "The Impact of Market Reforms on Competition, Structure and Performance of the Philippine Economy," Discussion Papers DP 2005-24, Philippine Institute for Development Studies.
    10. Saatci, Mustafa & Aslan, Alper, 2007. "TÜRKİYE İMALAT SANAYİNDE İTHALATIN PİYASAYI DİSİPLİNE ETME HİPOTEZİNİN TESTİ: PANEL VERi YAKLASIMI," MPRA Paper 10604, University Library of Munich, Germany.
    11. Claus Astrup & Sébastien Dessus, 2001. "Exporting Labor or Goods? Long-Term Implications for The Palestinian Economy," Working Papers 0131, Economic Research Forum, revised 10 2001.
    12. 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.
    13. Hervé Boulhol, 2005. "Why haven't price-cost margins decreased with globalization ?," Cahiers de la Maison des Sciences Economiques bla06007, Université Panthéon-Sorbonne (Paris 1).
    14. Hervé Boulhol, 2006. "Why Haven't Price-Cost Margins Decreased with Globalization ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00084267, HAL.
    15. Alejandro Castañeda, 2003. "Mexican manufacturing markups: procyclical behavior and the impact of trade liberalization," Economía Mexicana NUEVA ÉPOCA, , vol. 0(2), pages 209-230, July-Dece.
    16. Aslan, Alper & Kula, Ferit, 2008. "Türkiye İmalat Sanayinde Fiyat-Maliyet Marjları: Dönemler ve Sektörler İtibariyle Karsılastırmalı Bir Analiz," MPRA Paper 10606, University Library of Munich, Germany.
    17. Herve Boulhol, 2010. "Pro-competitive Effect of Trade and Non-decreasing Price-Cost Margins," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(3), pages 326-356, June.
    18. Astrup Claus & Dessus Sebastien, 2005. "Exporting Goods or Exporting Labor?: Long-term Implications for the Palestinian Economy," Review of Middle East Economics and Finance, De Gruyter, vol. 3(1), pages 38-60, April.

    More about this item

    Keywords

    country size; entry regulation; import penetration; industry markup;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • 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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